Is this short interest warranted?
However, just as we saw with Cliffs Natural, high levels of short interest came back to bite pessimists in the backside when Pitney Bowes Inc. (NYSE:PBI) reported encouraging second-quarter results last week. The big news was the sale of its management service unit to Apollo Global Management for $400 million, but its EPS beat of $0.09 shared the spotlight. Despite the pop, and the cash that will be used as a buffer to help pay out its impressive 4.3% yield, Pitney Bowes hasn’t addressed any growth issues and still plans to get by in the interim with cost-cutting. I’d still say short-sellers have a good shot at being right here over the long run.
United States Steel Corporation (NYSE:X)
Why are investors shorting U.S. Steel?
In a situation very similar to Cliffs Natural’s, short-sellers have repeatedly piled into United States Steel Corporation (NYSE:X) on the expectation that steel demand will remain weak, oversupply will remain high, and the company will have no choice but to idle more capacity to get back toward breakeven. Adding even more fuel to the fire is the fact that China’s GDP growth has slowed well below its 30-year average. Given U.S. Steel’s high debt levels and little pricing power, short-sellers expect further downside.
Is this short interest warranted?
Compared to the previous two companies, investors didn’t receive U.S. Steel’s earnings nearly so well. Reporting its second-quarter results last week, U.S. Steel delivered a smaller-than-expected loss of just $0.54 per share compared to the forecast of -$0.78 per share. But this loss reversed a year-ago gain and added to an already weak forecast calling for more struggles in Europe and ongoing losses. As I continue to say, U.S. Steel’s high levels of debt put it at a strategic disadvantage relative to many of its peers. If you must own a steel stock, I’d strongly suggest looking elsewhere in the industry.
Source: Karolina Kabat, Flickr.
Frontier Communications Corp (NASDAQ:FTR)
Why are investors shorting Frontier Communications?
The reason pessimists are increasingly shorting Frontier has to do with its reliance on landline customers, who have been leaving with some regularity because of the proliferation of wireless services in rural areas. Frontier has done its best to expand into broadband services and lure customers with competitive price packages, but that hasn’t stopped a revenue slide similar to Pitney Bowes’.
Is this short interest warranted?
It’s a bit tough to tell at this point, because unlike the previous three companies on this list, Frontier has yet to report its quarterly results. One thing is for certain, though: Frontier’s dividend will remain unchanged at $0.10 per share for at least the next quarter. A dividend cut would have been pretty telling to investors, so the simple fact that Frontier is keeping its yield near 9% should encourage long-term investors that its cash flow will remain steady. I’m erring on the side of bullishness moving forward, but I also fully understand why short-sellers are in this stock.
