These days there doesn’t seem to be much in the way of economic news that can stop the ascent of the broad-based S&P 500 . With good reason, the S&P 500 has eclipsed multiple new all-time highs this year as the unemployment picture continues to improve, housing prices and sales firm, and financial institutions regain their health. By all standards, the recovery from our worst recession in seven decades is coming along quite nicely.
Not everyone agrees, of course, as we discussed yesterday: Pessimists point to heavy cost-cutting and the imminent end of the Federal Reserve’s monetary-easing program as reasons why this rally may be on its last leg.
Regardless of what camp you find yourself in, pessimists near and far have kept their distance from a select group of S&P 500 components — the five most loved S&P 500 stocks, if you will. No matter how much skepticism has built around the market, these five companies possess the least amount of short-sellers based on shares outstanding. Not only is that a potentially bullish sign that the majority of shareholders expect these five stocks to rise, but it could also help teach us a lesson about these companies that we could apply to our own future investments.
Here are the S&P 500’s five most loved stocks:
| Company | Short Interest as a % of Shares Outstanding |
|---|---|
| Berkshire Hathaway Inc. (NYSE:BRK.B) | 0% |
| Abbott Laboratories (NYSE:ABT) | 0.55% |
| Philip Morris International Inc. (NYSE:PM) | 0.6% |
| The Coca-Cola Company (NYSE:KO) | 0.6% |
| Loews | 0.61% |
Source: S&P Capital IQ.
Berkshire Hathaway Inc. (NYSE:BRK.B)
Why are short-sellers avoiding Berkshire Hathaway Inc. (NYSE:BRK.B)?
Perhaps the question I should be asking is, “Why wouldn’t they?” There really isn’t any incentive in it for short-sellers to bet against Warren Buffett’s highly diverse conglomerate, which will span 58 separate subsidiaries once it encompasses electric utility NV Energy into the fold. The unique aspect of Berkshire Hathaway Inc. (NYSE:BRK.B) is that many of its businesses are based on inelastic goods that remain in high demand even if the economy turns south. To that end, Buffett has done a fantastic job of buffering against downside action in the economy and has built his holding company around nearly five dozen brands that help grow its book value.
Do investors have a reason to worry?
With the type of diversification Buffett has built into Berkshire Hathaway Inc. (NYSE:BRK.B)’s portfolio over the past five decades, I see little reason to worry. As with any company, a recession does have the potential to knock around Berkshire’s share price. However, over the long run this portfolio of companies is designed to improve Berkshire Hathaway Inc. (NYSE:BRK.B)’s book value and deliver steady wealth-appreciation to shareholders.
Abbott Laboratories (NYSE:ABT)
Why are short-sellers avoiding Abbott Laboratories (NYSE:ABT)?
There are a number of reasons why pessimists have wrapped yellow caution tape around Abbott Laboratories (NYSE:ABT). To begin with, the split between Abbott and AbbVie into two separate companies — with AbbVie becoming the branded-drug development wing and Abbott Laboratories (NYSE:ABT) retaining the generic pharmaceuticals, diagnostics, and medical-device segment — made it easier for shareholders to understand how each company makes money, thus enhancing shareholder value through transparency. Further, an aging Baby Boomer population that’s likely to demand more diagnostic care and devices needs bodes well for Abbott’s future. Finally, a low beta of 0.5 tends to repel most short-sellers who are looking for a quick buck.
