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Apple Inc. (AAPL): The Short Sellers Are Coming Furiously

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Many people like to follow what the “big money” institutional and hedge funds are buying, selling and shorting. So I began looking over some companies that have had changes in these areas. These companies are Yandex NV (NASDAQ:YNDX)Baidu.com, Inc. (ADR) (NASDAQ:BIDU)Zynga Inc (NASDAQ:ZNGA)Apple Inc. (NASDAQ:AAPL) and Netflix, Inc. (NASDAQ:NFLX).

Apple Inc. (NASDAQ:AAPL)For any new investors out there, short interest is an indicator of what short sellers think about a particular stock. Selling a stock short is a practice of selling securities that are not currently owned, with the intention of buying them back (“covering”) at a lower price. Short sellers assume that they will be able to buy the stock back at a lower amount than when they first sold them short.

If short interest increases, then shorts are betting that the price of the security will be going down. However, if short interest decreases, then shorts are betting that the price of the security is near its bottom and will likely be going back up.

Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Below is a table of the short interest increases of the following companies.

Settlement Date AAPL BIDU YNDX NFLX ZNGA
4/30/13 41,589,490 13,225,924 1,759,980 10,371,036 33,435,127
4/15/13 20,074,811 12,043,984 1,746,603 8,185,777 26,649,539
3/28/13 20,006,081 12,765,426 1,634,772 7,492,552 27,657,366
3/15/13 20,497,889 12,063,954 3,824,028 8,468,258 28,211,393
2/28/13 19,432,642 11,585,087 2,265,991 8,419,640 26,137,139

*Data from Nasdaq.com

As you can see from the table above, short interest has been increasing in these stocks. So why are shorts increasing their positions? There could be many different reasons as to why, so a good question to ask yourself in this situation is what do the shorts know that you don’t. Let’s take a look at the companies to see what has transpired for the rise in short interest.

Zynga Inc (NASDAQ:ZNGA): Develops, markets, and operates online social games in the United States and internationally.

Zynga has a market cap currently of $2.65 billion. Zynga has over $1.7 billion in cash and marketable securities and has no debt. As of Apr. 30, Zynga had short interest of 33.4 million, representing an increase of close to six million shares from the end of March. The short float now stands around 4% with the days to cover ratio at 1.16 days. Analysts have an average price target of $3.88 on Zynga which would reflect an increase of 17% from its closing price of $3.34 on Tuesday.

Some of the reasons for the climb in short interest was the fact that Zynga had mixed earning results a couple of weeks ago. Even though they beat on both the top and bottom lines, because of the weak guidance they gave for the upcoming quarter, shares have fallen. From the earnings report investors can see that Zynga’s monthly players have fallen from 292 million to 253 million, while its number of monthly paying users decreased to 2.5 million from 3.5 million. Because of this, shorts have taken a bigger position in the social games maker. I wouldn’t be surprised to see short interest keep climbing until Zynga can show that its system works (profitably) and is turning the corner.

Apple Inc. (NASDAQ:AAPL): Apple along with its subsidiaries, designs, manufactures, and markets mobile communication and media devices (iPhones, iPad’s), personal computing products, and portable digital music players (iPod’s) worldwide.

Apple Inc. (NASDAQ:AAPL) has a market cap currently worth over $415 billion. As of Apr. 3o, Apple had short interest of 41.5 million, representing a massive increase of over 20 million shares since the end of March. The short float now stands around 4% with the days to cover ratio at 1.73 days. Analysts have an average price target of $542.66 on Apple Inc. (NASDAQ:AAPL), which would reflect an increase of around 23% from its closing price of $443.86 on Friday.

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