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Affymax, Inc. (AFFY), Coinstar, Inc. (CSTR): The NASDAQ Composite (.IXIC)’s Five Most Hated Stocks

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Short-sellers certainly huffed and puffed with all of their might in May, but it wasn’t meant to be: The tech-heavy NASDAQ Composite (INDEXNASDAQ:.IXIC) rose another 3.8%, extending its year-to-date gains to an impressive 14.5%. A slow but steady economic recovery in the U.S., fueled by an accommodating Federal Reserve, has certainly set the stage for the bulls to keep running down Wall Street.

Affymax, Inc. (NASDAQ:AFFY)

However, not all investors see it this way. In fact, quite a few skeptics have been building positions squarely against some the NASDAQ Composite (INDEXNASDAQ:.IXIC)’s most active companies. As we’ve done for the past two months, I propose we again examine the NASDAQ Composite (INDEXNASDAQ:.IXIC)’s five most short-sold companies, figure out why investors have bet so decisively against them, and see whether there’s any merit to their bearishness.

Company Short Interest as a % of Shares Outstanding
Affymax, Inc. (NASDAQ:AFFY)
49.3%
Coinstar, Inc. (NASDAQ:CSTR)
44.7%
Questcor Pharmaceuticals Inc (NASDAQ:QCOR)
43%
GT Advanced Technologies Inc (NASDAQ:GTAT)
39.5%
Bio-Reference Laboratories Inc
(NASDAQ:BRLI)
37.8%

Source: S&P Capital IQ.

Affymax, Inc. (NASDAQ:AFFY)

Why are investors shorting Affymax, Inc. (NASDAQ:AFFY)?

  • Affymax, Inc. (NASDAQ:AFFY) short interest surged last month from 42% to 49% as the reality set in of the company’s voluntary recall of its only FDA-approved drug, Omontys, in February. Omontys, a drug used to treat anemia, caused severe adverse events in 0.2% of patients, including anaphylaxis. A total of three patients died from the injection. No definitive timetable has been given by Affymax, Inc. (NASDAQ:AFFY) as to how it will address the problems with Omontys.

Is this short interest deserved?

  • Absolutely! It’s quite possible that Omontys may never make it back to market, and that’s quite scary, as it currently makes up Affymax, Inc. (NASDAQ:AFFY)’s entire pipeline (Affymax, Inc. (NASDAQ:AFFY) had two additional clinical studies ongoing that used Omontys as the combination therapy). Even if Omontys manages to make it back to market, it could be with a nasty warning label that cripples its sales potential. I believe the short-sellers have this one properly pegged.

Coinstar, Inc. (NASDAQ:CSTR)

Why are investors shorting Coinstar, Inc. (NASDAQ:CSTR)?

  • Coinstar, Inc. (NASDAQ:CSTR)’s short interest actually fell month over month by roughly 270 basis points as Wall Street analysts continue to wage a war of words over the future of the company and its RedBox DVD rental business. Research firm B. Riley, for instance, upped its price target to $100 from $80 while Pacific Crest forecast that Coinstar, Inc. (NASDAQ:CSTR) could lose all of its Redbox free cash flow by 2016 as people make the transition away from DVD-rentals to digital streaming.

Is this short interest deserved?

  • I would certainly say that a high level of skepticism is warranted, given Coinstar, Inc. (NASDAQ:CSTR)’s reliance on DVD rentals to drive cash flow. A streaming partnership with Verizon Communications Inc. (NYSE:VZ) could help allay some of those fears over time, but the only answer right now for Coinstar, Inc. (NASDAQ:CSTR) is to saturate the market with RedBox kiosks in order to maintain its current revenue levels. That doesn’t strike me as a winning combination over the long run when everything is moving toward a convenient digital platform.

Questcor Pharmaceuticals Inc (NASDAQ:QCOR)

Why are investors shorting Questcor Pharmaceuticals Inc (NASDAQ:QCOR)?

  • As with Coinstar, short-sellers took a bit of a breather from betting against Questcor Pharmaceuticals Inc (NASDAQ:QCOR) after the share price shot up rapidly at one point last month. Although Questcor Pharmaceuticals Inc (NASDAQ:QCOR)’s first-quarter results left much to be desired from an EPS perspective, sales of its primary drug, Acthar Gel, reached a record in April, boding well for future growth. Still, an ongoing U.S. probe of Questcor’s marketing practices continues to weigh on optimists.

Is this short interest deserved?

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