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Cliffs Natural Resources Inc (CLF), Pitney Bowes Inc. (PBI): The S&P 500’s 5 Most Hated Stocks

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I’m not even certain that Superman could stop the broad-based S&P 500 , which has set a number of new all-time highs this year. Many of the S&P 500’s components are utilizing historically low lending rates to refinance their debt and make strategic acquisitions while also carefully scaling back expenses to bolster their bottom lines. It’s hard to believe that four-and-a-half years ago we were in the 600s — now we’ve eclipsed 1,700!

However, just as we have “glass half-full” investors, there are plenty of other investors out there who see the market — especially the broad-based S&P 500 — as overextended. These skeptics see a market driven largely by cost-cutting instead of top-line growth, reliant on artificially low lending rates created by the Federal Reserve’s ongoing quantitative easing. Once QE3 ends, the thesis is that the S&P 500 could be in big trouble when rates again begin to rise.

That being said, short-sellers have been relentless in their pursuit of five specific S&P 500 stocks — we’ll call them the S&P 500’s most hated stocks. Let’s have a look at which companies make the cut and determine what it is about them that short-sellers dislike so we can avoid similar companies in the future.

Company Short Interest as a % of Shares Outstanding
Cliffs Natural Resources Inc (NYSE:CLF) 36.51%
Pitney Bowes Inc. (NYSE:PBI) 30.45%
United States Steel Corporation (NYSE:X) 29.73%
Frontier Communications Corp (NASDAQ:FTR) 24.26%
GameStop Corp. (NYSE:GME) 23.64%

Source: S&P Capital IQ.

Cliffs Natural Resources Inc (NYSE:CLF)

Why are investors shorting Cliffs Natural Resources Inc (NYSE:CLF)?

The reason Cliffs Natural Resources Inc (NYSE:CLF) saw its short interest rise by nearly 5 percentage points for a second straight month is growing pessimism regarding commodity prices. Precious metals, as well as iron ore and coal, have been under serious pressure for the past year, and short-sellers had been betting on a poor second-quarter earnings report from Cliffs. In previous reports, Cliffs had slashed its dividend and drastically reduced its operating budget, so the possibility for a shortfall was certainly there.

Is this short interest warranted?

I’d be a fool not to recognize why short-sellers are betting against Cliffs Natural Resources Inc (NYSE:CLF), given the weakness in iron-ore pricing and demand, as well as low demand for metallurgical coal (in which Cliffs is a small-time player). Short-sellers were in for a rude awakening, though: The company’s second-quarter results two weeks ago delivered a bigger-than-expected quarterly profit of $0.87 per share compared to the Street’s estimates of $0.58 in EPS. Revenue of $1.5 billion — a 6% decrease from the previous year — was also much stronger than expected. If my arm were twisted, I’d say Cliffs is a lot closer to a $30 stock than a $10 stock, and I’d suggest that short-sellers reconsider their position in Cliffs Natural.

Pitney Bowes sorting machine. Source: Joe Hall, Flickr.

Pitney Bowes Inc. (NYSE:PBI)

Why are investors shorting Pitney Bowes Inc. (NYSE:PBI)?

The story on Pitney Bowes Inc. (NYSE:PBI) has been the same for years. This company develops software and hardware for the logistics industry — the United States (NYSE:X) Postal Service is a major customer. Many investors who don’t see the traditional mail industry turning around — ever — have taken to attacking the next best thing: Pitney Bowes Inc. (NYSE:PBI). With revenue down every year since 2008 and Pitney Bowes slashing its dividend in half in April, pessimists have all the reasons they need to stay decidedly bearish on the company.

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