Every month new data comes out regarding which stocks have the highest short interest as a percentage of the float. Some of the stocks which were most held short in October have been up strongly in the last month, testing the commitment of these short sellers. Here are three stocks with high short interest and high returns between October 1st and October 31st:
47% of the shares outstanding of Vera Bradley, Inc. (NASDAQ:VRA) were held short as of the most recent data. Vera Bradley is up 21% in October, and this rally has left it down 9% so far in 2012. Billionaire Steven Cohen’s SAC Capital Advisors seems to have caught this rally, as that fund had reported a position of 2.3 million shares in early September (read more about why Steven Cohen may have bought Vera Bradley). In its most recent quarter, ending in July- the second quarter of the company’s fiscal year- Vera Bradley reported strong revenue growth but earnings actually slipped by 2% compared to the same period in 2011. At 20 times trailing earnings, it does still look a bit overpriced unless the company begins to see moderate growth.
We can compare Vera Bradley to Coach, Inc. (NYSE:COH) and Fifth & Pacific Companies Inc (NYSE:FNP). Coach, a much larger company by market cap, has a trailing P/E of only 16 and its most recent quarter (which ended in September) showed a small increase in earnings versus a year earlier. We’d suppose that a number of market players are running a pair trade here, and while it may be running out of steam we think that Vera Bradley’s recent rally has indeed put it overpriced relative to Coach again. Fifth & Pacific, however, is expected to be unprofitable in 2012, and consensus for its 2013 earnings place it at a forward P/E of 50. It may be an even better short than Vera Bradley, and currently has a considerably lower 17% of the float held short.
First Solar, Inc. (NASDAQ:FSLR) is down 33% in 2012 (and down 82% in the last two years), but has also rallied in October as its stock price has risen 10%. Like Vera Bradley, data shows that short positions compose 47% of the shares outstanding. The solar stock is well liked by analysts, and the company did beat their expectations in the second quarter of the year (albeit after a huge miss in Q1). It now trades at only 6 times forward earnings estimates, and its five-year PEG ratio is only 0.2. Tiger Cub Philippe Laffont’s Coatue Management initiated a position of 2.9 million shares between April and June (see more stock picks from Coatue Management). There are a number of concerns about cheaper Chinese providers in solar-related industries, but we wouldn’t want to be short the stock and therefore dependent on enormous earnings misses. It is probably time to cover here.
We’ve mentioned Cohen’s purchase of Vera Bradley. Recently he also took a large stake in beaten-down OpenTable Inc (NASDAQ:OPEN). 62% of the outstanding shares of OpenTable were held short as of the most recent data report; the stock is up 9% for the month, driven partly by rumors that Yahoo was looking at the company as a potential acquisition. At a forward P/E of 25, and with little to suggest a strategic fit with Yahoo, we had suggested avoiding buying the stock (though we can certainly understand shorts getting spooked by the takeover rumors). OpenTable was one of the ten largest positions by market value in Valiant Capital’s 13F portfolio at the end of June. Valiant, which is managed by former Blue Ridge Capital managing director Christopher Hansen, has about $2.7 billion under management. Research more of Valiant’s top picks. This is another stock where we think we might be covering, though at the current valuation we would not take a long position.