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GT Advanced Technologies Inc (GTAT), Outerwall Inc (OUTR), UniPixel Inc (UNXL): The Nasdaq’s 5 Most Hated Stocks

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The tech-heavy NASDAQ Composite (INDEXNASDAQ:.IXIC) might be the only of the U.S.’s three primary indexes not to reach all-time highs in 2013, but it’s by far the best performer among the group, up 18.3% year to date.

We’re seeing a number of factors helping out the Nasdaq’s largest companies, but historically low lending rates in particular have allowed enterprises to refinance existing debt and/or use that debt to finance business expansion. So long as the Federal Reserve continues its favorable monetary policy, the sky could be the limit for the Nasdaq.

GT Advanced Technologies Inc (NASDAQ:GTAT)On the other side of the coin are the skeptics licking their chops and waiting to pounce on multiple Nasdaq companies that could be slammed if the Fed scales back its monetary easing, known as QE3, before the year is out. As we’ve done in previous months, I propose we examine the five most hated Nasdaq stocks (i.e., the stocks with the highest short interest), determine what it is about them that makes them universally disliked by pessimists, and decide whether these short-sellers are justified in their pessimism.

Company Short Interest as a % of Shares Outstanding
GT Advanced Technologies Inc (NASDAQ:GTAT) 43.63%
Outerwall Inc (NASDAQ:OUTR) 40.23%
UniPixel Inc (NASDAQ:UNXL) 35.41%
NII Holdings, Inc. (NASDAQ:NIHD) 34.83%
Dendreon Corporation (NASDAQ:DNDN) 33.17%

Source: S&P Capital IQ.

Source: Fernando Tomas, Flickr.

GT Advanced Technologies Inc (NASDAQ:GTAT)
Why are investors shorting GT Advanced Technologies?

  • Solar panel equipment provider GT Advanced Technologies Inc (NASDAQ:GTAT), a.k.a. GTAT, climbed the mountain in June to become the most disliked stock within the Nasdaq Composite. The reason short-sellers have dog-piled GTAT has to do with its ties in providing solar equipment to the Chinese solar-panel industry. Chinese solar producers are in cash-conservation mode, which means little research and development is being conducted. That means instead turning to GTAT to supply components for solar panels. With U.S. solar companies crushing Chinese panel-makers in recent months, pessimists are betting on a slowdown in orders for GTAT.

Is this short interest deserved?

  • There are reasons to be a bit skeptical of GT Advanced Technologies Inc (NASDAQ:GTAT)’s growth if Chinese solar companies begin to fold under the pressure of debt. However, until we see that happen, GTAT’s products should remain in high demand. Chinese solar-panel manufacturers have little regard for margin, so their answer to simply produce as much as possible in many cases works in GTAT’s favor. At roughly 11 times next year’s earnings, I feel GTAT could surprise short-sellers in a bad way.

Outerwall Inc (NASDAQ:OUTR)
Why are investors shorting Outerwall?

  • Don’t let the name fool you — Outerwall Inc (NASDAQ:OUTR) is merely the new name for Coinstar, the company best known for its Redbox DVD rental kiosks. The pessimism building around Outerwall has to do with the declining number of consumers that use DVD rental services, opting instead for the convenience and speed of streaming content. Although Outerwall’s revenue held up in its latest quarter, that was only after the addition of new DVD kiosks. In other words, same-kiosk sales are falling.

Is this short interest deserved?

  • Some investors see Outerwall Inc (NASDAQ:OUTR) as the ultimate value play. As for me, it’s nothing more than a glorified value trap. Its DVD rental business accounts for nearly 90% of total revenue, and on a per-kiosk basis it’s declining. Saturating the market will only further exacerbate costs. Unless Outerwall devotes its efforts to a streaming transition, it will likely be cash-flow negative within five years by my best “guestimate.” Without so much as a dividend to tickle value investors’ fancy, I’d strongly encourage passing on Outerwall.

UniPixel Inc (NASDAQ:UNXL)
Why are investors shorting Uni-Pixel?

  • Occasionally the “coolness” of a new product gets the better of investors. That seems to be the case with shareholders in UniPixel Inc (NASDAQ:UNXL), who have been on an unforgettable ride over the past 52-weeks from a low of $5 to as high as $41, then back to a current price around $12. The company’s flexible electronic film and a partnership opportunity with Eastman Kodak Company (OTCMKTS:EKDKQ) are what set investors off, but the potential for competition from Apple Inc. (NASDAQ:AAPL) is what put hope-filled investors back in their place. Now, Uni-Pixel has a more pressing worry: a handful of shareholder-based lawsuits directed at the company.

Is this short interest deserved?

  • I stated in March that short-sellers should take a hard look at UniPixel Inc (NASDAQ:UNXL), and if they had taken a position, they would be up more than 50%. For a company that made just $76,000 in the entirety of fiscal 2012, there were far too many questions about expanding its UniBoss line. There were even greater concerns, given these higher expenses, that it would be able to turn a profit. Until we see demonstrable results from Uni-Pixel and a settlement to its countless lawsuits, I’d suggest looking elsewhere.

NII Holdings, Inc. (NASDAQ:NIHD)
Why are investors shorting NII Holdings?

  • It’s not hard to see why the pessimism in South American wireless service provider NII Holdings, Inc. (NASDAQ:NIHD) has been building if you examine its last four quarterly reports, which reveal EPS misses of 1,100%, 60%, 185%, and 86% — yuck! Blame it on increased competition and oversaturation in Brazil, as well as the higher costs of deploying a 3G network, but NII Holdings has delivered only increasing losses to shareholders over the past year. Its most recent quarter highlighted a 13.5% decrease in revenue as churn rates increased and average revenue per user decreased.

Is this short interest deserved?

  • I don’t see how this growing pessimism isn’t deserved. The company has reversed profits into huge losses, its churn rates are rising, and it’s generating less money from its users compared to last year. Expanding its 3G network is a necessary step for its evolution in Brazil, but that’s already a crowded wireless market. Until you see definitive improvement in NII Holdings, Inc. (NASDAQ:NIHD)’s bottom line, I feel you need to steer clear of this stock.
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