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 number of shares sold short and see whether traders are blowing smoke or if their worry has some merit.
|Company||Short Increase Jan. 31 to Feb. 15||Short Shares as a % of Float|
|Exelon Corporation (NYSE:EXC)||69.1%||2.1%|
|Manulife Financial Corporation (USA) (NYSE:MFC)||84.7%||0.6%|
|Hess Corp. (NYSE:HES)||69.5%||6.3%|
Captain, we need more power!
It’s been a rough ride for Exelon Corporation (NYSE:EXC) shareholders, who have seen their holdings reduced by roughly two-thirds since mid-2008. A combination of the biggest recession to hit the country in 70 years coupled with a rapid deterioration in alternative energy fuel costs have put Exelon at a marked disadvantage.
Nuclear energy, for which Exelon is the largest supplier in the U.S., is pricier than any other form of energy, although rising natural gas prices and stabilizing coal prices in recent months are making that comparison a bit less stark. The key takeaway as to whether you think Exelon is a bloated pig or an amazing value has to do with its ability to generate demand for nuclear energy and if it can level the playing field by utilizing alternative energies of its own. To both fronts I’d say Exelon has a good shot at success.
In terms of alternative energy, Exelon Corporation (NYSE:EXC) is already working to actively boost its solar and wind production capacity, including a solar-farm project signed with First Solar, Inc. (NASDAQ:FSLR) in Maryland. Alternative energy projects like this cost a lot upfront, but their long-term effect is financially beneficial for shareholders, energy customers, and the environment.
I suspect Exelon will get its nuclear gap bridged sooner than later as President Obama’s U.S. energy independence initiatives will supply the nuclear industry with much-needed subsidies to keep building. If nuclear power, which is another form of clean energy, can receive a governmental boost, then Exelon Corporation (NYSE:EXC) should have no problem competing against low natural gas prices.
I’ll gladly pay you Tuesday for a higher Treasury yield today!
Short sellers in the life insurance and financial protection sector may want to double-think their positions after that considerably better-than-expected jobs report on Friday.