J.C. Penney Company, Inc. (JCP), Perrigo Company (PRGO), Cabot Oil & Gas Corporation (COG): Shorts Are Piling Into These Stocks. Should You Be Worried?

Pumping up the profits
I’ll freely admit that I’ve had a hard time getting excited about natural gas drillers’ valuations over the past couple of years. Although natural gas prices have rebounded well off their 2012 lows of less than $2 per thousand cubic feet, costs of production for many, or simply the capital expenditures needed to switch their production from gas heavy to a more balanced mix of liquids and gas, hasn’t exactly opened the floodgates for value investors.

One such case is Cabot Oil & Gas Corporation (NYSE:COG), which is relying heavily on an increase in natural gas demand, and rising nat-gas prices, to drive its results. Yet again, on paper almost any company which is pulling fossil fuels out of the ground makes strategic sense since the demand for energy is only going higher. Yet Cabot’s forward P/E of 29 and price-to-sales of 11 are enough to given any fundamentally driven investor a case of skittishness — I know it certainly did that to me!

However, whatever skittishness may have existed is probably long gone following Cabot Oil & Gas Corporation (NYSE:COG)’s second-quarter results. The company noted a 52% increase in production to 95.2 billion cubic equivalent feet of nat-gas as comparable-quarter costs fell 28% year-over-year and net income increased by nearly 150%! What I find more impressive is that Cabot’s discretionary cash flow improved 109% to $297 million, proving that it can rely on its cash flow to fund its drilling programs. A truly pitiful $0.01-per-quarter dividend does leave a lot to be desired from a shareholders’ perspective, but the stock appears unlikely to see any major downside unless nat-gas prices seriously tank.

Foolish roundup
This week’s theme is all about differentiating between paper profits and the real world. On paper, J.C. Penney Company, Inc. (NYSE:JCP)’s has the right plan to turn its business around, Perrigo Company (NYSE:PRGO) is going to see its business grow as baby boomers age, and Cabot Oil & Gas Corporation (NYSE:COG) is going to improve production as natural gas prices rise. In reality, Penney’s ship is still taking on water (just at a slightly slower pace), Perrigo picked up a big question mark in Elan, and Cabot is at the mercy of nat-gas prices.

The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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