Out of all the indicators and tools available to retail investors for gauging short-term price movements, short interest can easily be classified as one of the most reliable ones. The reason for that is fairly obvious. While most tools and indicators use price movements, which is erratic most of the times, short interest is calculated by using actual transaction data. If the stock of a company sees a notable increase in its short interest during a time period it basically means that the numbers of shares sold short by investors that haven’t been covered yet have increased, and hence, more people are betting on the price of the stock to decline. At Insider Monkey, we cover leading hedge funds and also keep a track on the notable movements in the market, which includes significant rise or fall in short interest. Having said that, in this post, we will take a look at five NASDAQ stocks that saw a marked increase in their short interest in the second-half of May (13-31) and will also discuss what the over 800 hedge funds tracked by us thought about these stocks heading into the second quarter.
Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).
#5 NetEase Inc (ADR) (NASDAQ:NTES)
– Increase in short interest in the period between May 13-May31: 42.5%
– Investors with long positions (as of March 31): 31
– Aggregate value of investors’ holdings (as of March 31): $2.27 billion
Let’s start with Chinese Internet company NetEase Inc (ADR) (NASDAQ:NTES), which saw the short interest in it rising to 3.3% of its float during the second-half of May. During the first quarter, the number of hedge funds covered by us long NetEase Inc (ADR) (NASDAQ:NTES) increased by six, but the aggregate value of their holdings in it dropped by $796 million. Notable investors that initiated a stake in the company during that period included Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which purchased 582,473 shares. Though the shares of NetEase have declined by over 10% so far this year, most analysts have a favorable outlook on the stock going forward due to the consistent outperformance of the company on the financial front and the growth of its mobile gaming business. On May 12, analysts at Nomura upgraded the stock to a ‘Buy’ from ‘Neutral’ and also raised their price target on it to $194 from $174.
Follow Netease Com Inc (NASDAQ:NTES)
Follow Netease Com Inc (NASDAQ:NTES)
#4 Apple Inc. (NASDAQ:AAPL)
– Increase in short interest in the period between May 13-May31: 78.9%
– Investors with long positions (as of March 31): 152
– Aggregate value of investors’ holdings (as of March 31): $14.82 billion
Amid a 10% rise in Apple Inc. (NASDAQ:AAPL)’s stock during the second-half of May, the short interest in the company rose by 78.9% to 1.8% of its outstanding stock. The hardware behemoth saw its ownership among funds covered by us rising by 19 during the first quarter. However, the aggregate value of their holdings in it declined by $2.9 billion in that period. Funds that upped their stake in the company during the first quarter included Phill Gross and Robert Atchinson‘s Adage Capital Management, which brought its holding up by 5% to 8.46 million shares. The fiscal 2016 second quarter was the first time in the last 13 years that the company reported a year-over-year decline in its revenues, following which its stock fell drastically and despite the 10% rise in late-May still trades down by 15% year-to-date. The company kicked off its annual worldwide developers’ conference (WWDC) in San Francisco on June 13. A few analysts are of the opinion that if Apple Inc. fails to come up with some major announcement at this year’s WWDC, its stock can witness a sell-off in the coming weeks.