Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Berkshire Hathaway Inc. (BRK.A), The AES Corporation (AES): The S&P 500 (.INX)’s 5 Most Loved Stocks

Page 1 of 2

Berkshire Hathaway Inc. (NYSE:BRK.A)

It’s not hard to be optimistic about the prospects for the broad-based S&P 500 (INDEXSP:.INX) with the index closing yesterday at a new all-time high. The jobs picture continues to slowly improve and the majority of companies within the S&P 500 (INDEXSP:.INX) have blown past, or at least met, Wall Street’s earnings expectations thus far in the second-quarter. In a shade over four months, the S&P 500 (INDEXSP:.INX) is up 13% for the year.

While not all investors agree that the market will head higher, short-sellers have certainly kept their distance from a select few S&P 500 (INDEXSP:.INX) components. Today, just as we did last month, I intend to look at the five least short-sold S&P 500 (INDEXSP:.INX) components and decide whether or not current shareholders have any reason to worry.

Company Short Interest as a % of Shares Outstanding
Berkshire Hathaway 0.00%
AES
0.48%
Precision Castparts
0.53%
Loews 0.54%
Marsh & McLennan 0.55%

Source: S&P Capital IQ.

Berkshire Hathaway Inc. (NYSE:BRK.A)

Why are short-sellers avoiding Berkshire Hathaway Inc. (NYSE:BRK.A)?

  • Just as we saw last month, there’s really not a justifiable reason to bet against Berkshire Hathaway Inc. (NYSE:BRK.A) unless you believe there’s going to be a major deterioration in the overall economy. Even then, it wouldn’t make a lot of sense to bet against Berkshire Hathaway Inc. (NYSE:BRK.A), given that its 57 owned businesses cover a variety of sectors which would spread out its potential risk.

Do investors have a reason to worry?

  • As long as Warren Buffett is involved in the decision-making process shareholders can sit back and relax. Buffett and his trusted assistant Charlie Munger love boring companies that simply make money. Berkshire’s portfolio is filled with well-diversified, established companies, and Berkshire Hathaway Inc. (NYSE:BRK.A) has been rewarding shareholders with share repurchases of its own stock thanks to an abundance of cash on hand. This certainly isn’t a formula any short-seller would dare mess with.
The AES Corporation (NYSE:AES)

Why are short-sellers avoiding The AES Corporation (NYSE:AES)?

  • It appears the primary reason for short-sellers to avoid The AES Corporation (NYSE:AES), a global power company, is the fact that it reaffirmed its full-year EPS forecast in April. Although the company’s first-quarter EPS guidance would signal an EPS reduction from the year-ago period, the simple fact that it stuck to its original guidance and operates in many rapidly growing emerging markets has short-sellers on the run.

Do investors have a reason to worry?

  • This is a case where I’m having a difficult time understanding why the short interest is so low. The AES Corporation (NYSE:AES) certainly isn’t expensive at just 11 times this year’s earnings, but the company has struggled in recent years with unfavorable currency translations, weak foreign energy demand, and a mountain of debt that currently totals $21.4 billion. Enough uncertainty exists here that I think shareholders should remain on their toes.
Precision Castparts Corp. (NYSE:PCP)

Why are short-sellers avoiding Precision Castparts?

  • Precision Castparts Corp. (NYSE:PCP), a manufacturer of metal components and products for the aerospace and energy industries, has benefited from a rebounding economy. An improving jobs outlook and stable costs would signal a good potential for growth in the metal fabrication business. With a price-per-share of nearly $190 and a revenue growth rate forecast to average about 20% over the next two years, short-sellers have all the reasons they need to pass.

Do investors have a reason to worry?

  • Although I agree that Precision Castparts Corp. (NYSE:PCP)’ revenue growth is phenomenal and its high share price can be quite the deterrent to attractive short-sellers, I’m a bit concerned that the company has missed Wall Street’s EPS projections in three straight quarters. Furthermore, the company’s annual dividend of $0.12 is a slap in the face to income-seeking investors (a yield of just 0.1%). Unless the company can meet or beat EPS estimates next quarter, I’d look for short interest to rise as I fail to see many long-term catalysts.

Page 1 of 2
Loading Comments...