Why are investors neglecting these stocks?
These stocks have taken a tumble during a positive period for the markets.
The Standard & Poor's 500 Index ($INX) has posted gains in five of the past six months and is on pace for the best quarter in over 10 years.
However, equities are showing signs of weakness as the new durable goods orders report only increased 2.2% in February, compared to estimates of 3%.
"The global recovery is not as robust as we may have thought or wished it was," Todd Schoenberger, managing director of LandColt Trading, recently told CNBC. "All the news out there is telling us that there was nothing organic about this rally."
While some investors still remain bullish on equities, many are looking to make a profit by shorting specific stocks. Using data recently released by U.S. exchanges, Bespoke Investment Group, a money management and research firm, listed recently the most heavily shorted stocks in the S&P 1500 based on short interest as a percentage of floating shares.
Here are the five most popular stocks to short in the S&P 1500, according to Bespoke:
Diamond Foods (DMND): The snack maker tops the list with a short interest of almost 57% of float. The company is being probed by regulators due to improper accounting methods and recently suspended its dividend. The accounting scandal also killed Diamond's plan to purchase Procter & Gamble's (PG) Pringles. Instead, Kellogg (K) purchased the chip brand. Shares of Diamond Foods have declined 27% year-to-date.
Barnes & Noble (BKS): Founded in 1986, the bookseller and content provider is the second most popular stock to short, with a short interest of 50% of float. The company's Nook e-reader has seen increasing competition from other tablets such as Amazon's (AMZN) Kindle Fire and Apple's (AAPL) iPad. Shares gained 2.3% last year, but have fallen almost 6% in 2012. In the past three years, shares have declined 41%.
KB Home (KBH): The homebuilder has a 46% short interest of float, but investors have been burned by the stock. Year-to-date, shares have gained 38%. However, the tide may be turning after a disappointing earnings report last week. The fifth-largest U.S. homebuilder reported a net loss of $45.8 million for the first quarter, as orders for new homes fell 8%. Since the report, shares have plummeted almost 20%.
Savient Pharmaceuticals (SVNT): The specialty biopharmaceutical company has a 44% short interest of float. For the fourth quarter, the company recently announced a loss of 44 cents per share, missing analyst estimates of 38 cents per share. In November, JMP Securities downgraded shares from "market perform" to "market underperform." After surging 153% in 2009, shares declined 18% and 80% in 2010 and 2011, respectively. Shares have edged about 2% lower this year.
GameStop (GME): With the rise of online social companies such as Zynga (ZNGA), GameStop has fallen out of favor with many investors. The brick-and-mortar video game retailer has a 43.9% short interest of float. Shares posted modest gains in 2010 and 2011, but have declined almost 3% this year. Going forward, the company could see more weakness. According to reports by Kotaku, the new Sony (SNE) PlayStation will feature some kind of restriction on used games, possibly hurting GameStop's pre-owned game business.
Other recognizable names further down the list include: First Solar (FSLR), Coinstar (CSTR) and J.C. Penney (JCP). Year-to-date, the best performer on the list for short sellers is RadioShack (RSH), with a decline of 34%. Meanwhile, shares of Sears Holdings (SHLD) have been a nightmare for short sellers, surging 117% this year.
Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.
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