Shorts Are Piling Into These Stocks. Should You Be Worried?: Plains All American Pipeline, L.P. (PAA), Sprint Nextel Corporation (S)

Page 1 of 2

Sprint Nextel Corporation (S)The best thing about the stock market is that you can make money in either direction. Historically, stock indexes have tended to trend up over the long term. But when you look at individual stocks, you’ll find plenty that lose money over the long haul. According to hedge-fund institution Blackstar Funds, even with dividends included, between 1983 and 2006, 64% of stocks underperformed the Russell 3000, a broad-scope market index.

A large influx of short-sellers shouldn’t be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let’s look at three companies that have seen a rapid increase in the amount of shares sold short and see whether traders are blowing smoke, or if their worry has some merit.

Company Short Increase Dec. 31 to Jan. 15 Short Shares as a % of Float
UnitedHealth Group Inc. (NYSE:UNH) 89.9% 1.2%
Plains All American (NYSE:PAA) 49.4% 0.7%
Sprint Nextel Corporation (NYSE:S) 35.8% 1.8%

Source: The Wall Street Journal.

Turn that frown upside down
The Centers for Medicare and Medicaid Services is forecasting that annual health care expenditures will rise from $2.8 trillion in 2012 to $4.8 trillion in 2021. Keeping that in mind, I’ll give you three guesses how I feel about health-benefits provider UnitedHealth Group — and the first two guesses don’t count!

In UnitedHealth’s most recent quarter, it recorded an 11% increase in net revenue, but saw medical costs climb 12% and operating costs rise a disappointing 13%. Before you go sounding the pessimist horn, keep in mind that UnitedHealth’s higher operating costs were from a move to bring a pharmacy-benefits business in-house, and because of new contract costs associated with its expansion in Tricare, a health-benefits program for military members and their families. The company also bought a majority stake in Amil Participacoes, one of Brazil’s largest health-benefits providers, for $4.9 billion in October.

What we have here is a health-benefits company that’s branching out overseas, and that’s also working its way into pharmacy-benefits management and other aspects of information technology.

The expected influx of members under the Medicaid expansion pushed UnitedHealth’s peer WellPoint, Inc. (NYSE:WLP) , which was the most exposed to small businesses of all health-benefits providers, to purchase Amerigroup for $4.46 billion in order to get its piece of the government-sponsored pie. UnitedHealth, because of its diversified operations both domestically and abroad, has the ability to keep costs under control to a better extent than many of its peers — even WellPoint. With that said, no, I don’t think it’d be prudent to bet against UnitedHealth Group here.

Let the good times flow
Whether it’s a boom in liquid natural gas, oil, or natural gas, midstream pipeline and storage companies offer some of the safest plays in the energy sector. You’ll be hard pressed to find any that trade cheaply given the fact that President Obama’s plan to beef up the U.S.’ energy independence will require massive amounts of new investments in pipelines, storage, and other modes of transportation. That’s why, even with Plains All American looking a little pricey at the moment, it may not be the smartest idea to bet against the company.

As the Fool’s energy maven Aimee Duffy has pointed out on numerous occasions, Plains’ acquisitions are what put this midstream company in such phenomenal shape. As Aimee notes, Plains recently announced its intentions to purchase a total of five crude oil rail terminals in the East, West, and Gulf Coasts for $500 million based on the premise that the oil-by-rail trend is only going to grow. With the ability to bypass Cushing, Okla., drillers can choose to ship their oil by rail to a Plains All American terminal, pay the shipping fee, and still come out further ahead in the Gulf where they’ll receive Brent crude pricing than if they sold cheaper either at the wellhead or in Cushing. This is a big trend for oil assets in the Bakken shale region and is likely to spread to other regions of the country.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!