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

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Economic problems and worries? We’ll have none of those here, says the Nasdaq Composite, which soared to a fresh 12-year high on this week’s news that the Federal Reserve is no closer to ending its free-money campaign, known as QE3, than it was last month. This likely means an ongoing period of low lending rates, which should spur borrowing by businesses and consumers, as well as purchasing of goods from small consumer products all the way up to homes via mortgages.

GT Advanced Technologies Inc (NASDAQ:GTAT)However, not everyone has bought into this rally — and you can count me among the group. There are worrisome factors such as cost-cutting contributing to the earnings beats, while top-line growth continues to fall short. In addition, the imminent near-future ending of QE3 could end up hurting the economy by causing interest rates to rise, and it could cause growth in sectors such as banking and homebuilding to come to a grinding halt.

To that end, this is why we look each month at the Nasdaq Composite’s five most hated (i.e., short-sold) stocks to get an idea of what investors are looking for in the purported “worst” companies among the tech-heavy index so that we might avoid making the same mistake by investing in companies with high levels of pessimism in the future.

Let’s have a look at the Nasdaq’s most hated companies:

Company Short Interest as a % of Shares Outstanding
GT Advanced Technologies (NASDAQ:GTAT) 43.41%
Outerwall (NASDAQ:OUTR) 40.98%
Uni-Pixel 38.29%
Sarepta Therapeutics (NASDAQ:SRPT) 36.44%
NII Holdings (NASDAQ:NIHD) 35.82%

Source: S&P Capital IQ.

GT Advanced Technologies Inc (NASDAQ:GTAT)

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

GT Advanced Technologies Inc (NASDAQ:GTAT), abbreviated GTAT, hasn’t relinquished its top spot as the Nasdaq’s most hated stock. However, its short interest dropped ever so slightly month over month. Short-sellers have positioned themselves in anticipation of weak second-quarter results, expected to be released next week. The thesis is that with Chinese solar firms so reliant on GTAT for parts, yet prices so depressed and Chinese solar firms carrying so much debt, GTAT may see pricing pressures (which would lead to lower margins) or simply fewer orders as its customers fold under crushing debt levels.

    Is this short interest deserved?

    Skepticism of anything solar coming out of China clearly has to be looked at with a discerning eye, but the Chinese government made clear last month that it plans to do everything in its power to quadruple solar-engineering capacity to 35 gigawatts by 2015. The Chinese government realizes that with new anti-dumping tariffs set to go in effect in Europe, and First Solar being staunchly competitive in the U.S., it needs to do everything it can to support its domestic solar industry, regardless of what it might mean for Chinese solar margins. That’s good news for GTAT, which is being heavily relied upon by Chinese solar manufacturers. I’d actually advise short-sellers here to tread with the utmost care.

      Outerwall Inc (NASDAQ:OUTR)

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

      Outerwall Inc (NASDAQ:OUTR) may have changed its name from Coinstar, but the company best known for its Redbox DVD rental kiosks and Coinstar change machines hasn’t done a very good job of hiding from short-sellers. The thesis behind the negativity remains the same: DVDs are on their way out as streaming content becomes the new norm — one need only look at Netflix for confirmation of this! Short-sellers are betting that an ongoing DVD exodus will pressure Outerwall Inc (NASDAQ:OUTR)’s cash flow and push the company into a costly restructuring period in which it spends a lot of its free cash flow in an effort to diversify its revenue stream beyond its network of kiosks.

        Is this short interest deserved?

        Let me think about this…uh, yeah! Outerwall Inc (NASDAQ:OUTR)’s short-sellers certainly had the last laugh following its second-quarter earnings report, which saw the company trounce EPS estimates by nearly 100% but fall short on revenue not only for this quarter, but also for the upcoming quarter and the full year. Outerwall Inc (NASDAQ:OUTR) also slightly reduced its EPS forecast for the full year. There’s little denying the margin pressure it’s under, and I don’t see how it’s going to get better anytime soon.

          Why are investors shorting Uni-Pixel?

          Not a lot has changed since we last looked at Uni-Pixel, other than the fact that short-sellers have added even more shares since June. The reasoning behind the increasing pessimism can be traced to two factors. First, Uni-Pixel’s product is still largely unproven. To think it can grow from $76,000 in revenue in all of 2012 to millions overnight without potential glitches and new competitors is foolish. Second, investors appear to have ended their love affair with Uni-Pixel’s flexible electronic film. We investors love new technology, but we’re terrible at predicting when it will take off.

            Is this short interest deserved?

            Given the steady stream of lawsuits and investigations being filed against the company since the beginning of July, as well as the fact that Uni-Pixel has yet to turn a profit, I’d certainly say short-sellers are justified in their pessimism. The real challenge comes in a week when Uni-Pixel reports its quarterly results. Given its volatile nature, short-sellers could easily be squeezed out of their positions, so it’s definitely not for the faint of heart. However, the fundamentals as of now wouldn’t support a huge rally, in my opinion.

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