Short-sellers have certainly huffed and puffed, but they haven’t been able to blow the S&P 500 (INDEXSP:.INX) over once in the past seven months. In fact, through the end of May, the S&P 500 (INDEXSP:.INX) is up 14.3% year to date.
Leading this broad-based index higher has been a combination of lower unemployment rates, steady growth in the manufacturing sector, and a stabilizing housing sector that has led to higher home prices and lower inventories.
But even with most economic data pointing to a slow but sustained rally, pessimists have been positioning themselves for what they suspect is an inevitable downturn in the market. After looking at the S&P 500 (INDEXSP:.INX)’s most hated stocks yesterday, I propose we turn the tables and examine the five S&P 500 (INDEXSP:.INX) companies that pessimists won’t come within 10 feet of — the so-called “most loved” S&P 500 companies — and figure out what traits they possess that keep short-sellers at bay.
| Company | Short Interest as a % of Shares Outstanding |
|---|---|
| Berkshire Hathaway | 0% |
| Loews | 0.53% |
| Marsh & McLennan (NYSE:MMC) | 0.58% |
| Chubb (NYSE:CB) | 0.61% |
| Hudson City Bancorp (NASDAQ:HCBK) | 0.63% |
Source: S&P Capital IQ.
- If you’re an investor, you know the name Warren Buffett and likely know better than to bet against his well-diversified company. With 57 businesses across myriad sectors under Berkshire Hathaway Inc. (NYSE:BRK.A)’s ownership, there’s little impetus to bet against the stock. Just last week the company announced a deal to acquire NV Energy, Inc. (NYSE:NVE) for $5.6 billion in order to allow its MidAmerican Energy unit to assist NV Energy, Inc. (NYSE:NVE) in expanding its alternative energy offerings in Nevada.
Do investors have a reason to worry?
- As has been the answer for the past couple of months: not really. What you give up with Berkshire in terms of rapid growth rate you’ll gain in the assurance that it’ll often outperform the S&P 500 (INDEXSP:.INX) in a down market. Berkshire’s diversity is second to none and borders on owning a highly liquid mutual fund. So long as Warren Buffett is at the helm of Berkshire Hathaway Inc. (NYSE:BRK.A), I doubt investors have much to be concerned about.
Why are short-sellers avoiding Loews?
- The reason short-sellers are keeping their distance from Loews Corporation (NYSE:L) is the same reason they are hesitant to bet against the entire insurance sector: It’s a crapshoot. There isn’t any rhyme or reason as to when a natural disaster will occur, so placing a bet against insurers is merely a bet on having lucky timing. Insurers are able to justify bumping their premiums higher if catastrophe losses shoot up, always leaving them with the ability to turn a profit.
Do investors have a reason to worry?
- There is a chance that a vicious tornado and hurricane season could impact Loews’ bottom line just as Superstorm Sandy crippled earnings in its most recent quarter. Then again, it gives Loews Corporation (NYSE:L) all the more reason to raise premiums with reasonable justification and ensure that it remains healthfully profitable. Needless to say, I can think of plenty of better shorting opportunities than Loews.
Why are short-sellers avoiding Marsh & McLennan?
- Marsh & McLennan Companies, Inc. (NYSE:MMC) is a global risk and strategy advisor whose business is dependent on the overall economy. Simply put, if the market is heading higher, then Marsh & McLennan’s strategic advice will remain in high demand. Operating income for the company has been on a steady incline since 2008 and hasn’t shown any signs of slowing.
