The first quarter officially came to a close last weekend and ended on a perfect note for the broad-based S&P 500 — at an all-time record high. Economic data has been slowly improving on the jobs front, as well as many other sectors of the economy, suggesting that the S&P 500’s 10% rally in the first quarter may be sustainable.
However, quite a few skeptics still don’t see the market’s gains as sustainable. The actions of these skeptics can be seen in these five most hated S&P 500 companies:
|Company||Short Interest as a % of Shares Outstanding|
|Pitney Bowes (NYSE:PBI)||29.57%|
What I propose we do is simple: Let’s have a look at why investors might be betting against these five companies, and then we’ll determine whether or not their pessimism is warranted.
GameStop Corp. (NYSE:GME)
Why are investors shorting GameStop Corp. (NYSE:GME)?
The contempt for GameStop Corp. (NYSE:GME) begins with the cyclical nature of the video game industry. GameStop Corp. (NYSE:GME), which is a retail outlet for video games, consoles, and other gaming accessories, has had its margins come under serious pressure as digital outlets for downloading and playing games have emerged and taken revenue away from its brick-and-mortar locations. Further, we haven’t seen any new gaming consoles in years, which has tempered gamers’ desire to spend freely in GameStop Corp. (NYSE:GME)’s stores.
Is this short interest deserved?
I believe this pessimism is undeserved for a number of reasons. First, we have a slew of new gaming consoles due out in the second half of this year that are likely to spur GameStop’s sales. Second, GameStop Corp. (NYSE:GME) has remained healthfully cash-flow positive despite the industry’s cyclical nature. A tight lid on costs, as well as a focus on enhancing digital offerings, actually resulted in the company’s highest gross margin in a decade in 2012. Finally, GameStop’s 4% yield asserts that short-sellers are barking up the wrong tree.
Pitney Bowes Inc. (NYSE:PBI)
Why are investors shorting Pitney Bowes Inc. (NYSE:PBI)?
Pitney Bowes Inc. (NYSE:PBI), known best for its postage meters and other mail-related software, has struggled with the proliferation of Internet-based postage purchases and declining physical mail volumes. The company is attempting to reorganize its business to focus more on cloud-based and service-oriented models, but it also has to contend with more than $4 billion in net debt on its balance sheet.