Western Refining, Inc. (WNR), Radian Group Inc (RDN): Do the Shorts Have It Wrong?

Having said that, unless that region of the world falls into total anarchy, Arcos Dorados Holding Inc (NYSE:ARCO) still has plenty going for it. Protesters still need to eat, and the best dining option for the on-the-march protester is naturally McDonald’s (I kid — I am in no way basing my analysis on this).

Based on second-quarter results, Arcos Dorados Holding Inc (NYSE:ARCO) looks attractive in the long term and ugly in the short term. Firstly, excluding the negative effect of currency devaluation, adjusted EBITDA expanded 18.2% year on year. However, including the effect of currency devaluation, growth was nil. Adjusted revenue expanded 16.9%, and sales notched double-digit growth thanks to aggressive marketing tactics. Indeed, management noted, “The achievement of double-digit comparable sales and organic revenue growth, despite low consumer activity in Brazil and continued economic weakness in Venezuela, underscores our brand strength.”

So, all in all, the company looks attractive. The ability to grow sales while economic activity is so disrupted is not the mark of a failing company. It would appear that the high short interest owes to short-term beliefs that instability in South America will slow sales, but that doesn’t seem to be the case. The long-term investment thesis for Arcos Dorados Holding Inc (NYSE:ARCO) remains intact.

An overbought housing-recovery play

Still, analysts remain positive, estimating that Radian Group Inc (NYSE:RDN) will return to profit during 2014, generating EPS of $1, which puts the company on a forward earnings multiple of 13.7, although this is expensive compared to peer Genworth Financial, which trades at a forward earnings multiple of 8.8 but has a more diversified business model and is still cash-generative.

All in all, I would be wary of Radian Group Inc (NYSE:RDN). They say the trend is your friend, so I think the company’s stock price will go higher, but the company is still struggling fundamentally, and I would not invest in it for the long term just yet.

Foolish summary
Shorts all have their reasons for holding large positions in these companies, but these stocks’ longer-term investment theses remain intact, and for that reason I would have no problem with taking a position.

The article Do the Shorts Have It Wrong? originally appeared on Fool.com is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Arcos Dorados and WNR. 

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