SAP AG (ADR) (SAP), The Men’s Wearhouse, Inc. (MW), Lender Processing Services, Inc. (LPS) – Shorts Are Piling Into These Stocks. Should You Be Worried?

Growing concerns
For a vast majority of the financial sector, rising interest rates are viewed as an excellent sign and a big reason that net interest margins (a measure of profitability between what a bank borrows at and what it lends at) are expected to rise. For mortgage-lending service software provider Lender Processing Services, Inc. (NYSE:LPS), it’s the worst possible news imaginable.

In Lender Processing Services, Inc. (NYSE:LPS)’ latest quarterly results, we were able to see just how beneficial low lending rates have been in encouraging mortgage lenders to purchase its analytics software. The company reported an adjusted profit of $0.22 compared to a year-ago loss of $0.45, and was helped out in a big way by considerably lower legal expenses.

However, mortgage rates have been on the rise since May with mortgage banking activity having dropped by 53% since its peak. That bodes very poorly for Lender Processing Services, Inc. (NYSE:LPS), which relies on low lending rates to drive business. With rates having been kept so low for so many years, consumers have essentially been spoiled and are very unlikely to jump at rates now, which are still very low by historical standards. The company may seem relatively inexpensive at 13 times forward earnings, but that figure could easily rise if mortgage applications keep sinking.

Foolish roundup
This week I’m unanimously siding with the short-sellers, at least over the short term. International cloud-sales are notoriously weak, dooming SAP AG (ADR) (NYSE:SAP); The Men’s Wearhouse, Inc. (NYSE:MW)’s transition concerns as well as weakness in main rival Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) bode poorly over the near term; and Lender Processing Services, Inc. (NYSE:LPS)’ direct ties to lending rates signal what could be a slowdown in its software and analytics business.

The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com and is written by Sean Williams.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Oracle.

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