Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

UniPixel Inc (UNXL), Navistar International Corp (NAV): When Being ‘Short’ Backfires!

Conclusion

In my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I discuss unmeasured fundamentals to explain how investors can use these things to make better investment decisions and to capitalize on overly pessimistic behavior. One topic is identifying the difference between a justly short stock and one that is not. For example, stocks such as UniPixel Inc (NASDAQ:UNXL) and Universal Display Corporation (NASDAQ:PANL) are appropriately shorted, as most reasonable investors understand that it is simply a domino effect that is leading to such large gains. However, in the case of stocks such as Pandora Media Inc (NYSE:P) or even Navistar International Corp (NYSE:NAV), investors’ pessimistic long-term outlooks can often be beneficial and create large gains when a catalyst presents itself.

To better explain, I’ll conclude with Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI):This is a company that has seen multiple years of growth, has three FDA approved products, 10 drugs in its pipeline, a P/E ratio of 8, yet still has a short ratio of 33.30. The presence of shorts will keep the stock volatile (100% more volatile than the market), and will keep it from appropriately appreciating to reflect fundamental performance. But as we’ve seen in the past, eventually the overly pessimistic outlooks will create large and sudden gains. The key is patience, being able to remain calm and logical despite frustration, and you will then reap the benefits when being short backfires.

Brian Nichols is long SPPI. The Motley Fool recommends Universal Display Corporation (NASDAQ:PANL). The Motley Fool owns shares of Universal Display Corporation (NASDAQ:PANL).

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.