Short-sellers may be enjoying a little bit of a victory, with the markets having their worst month in more than a year, but that victory only equated to having the iconic Dow Jones Industrial Average lose 4.4% for August. While optimists would certainly love that figure to be positive, in the grand scheme of things, this drop was pretty small.
Since hitting its decade lows during the Great Recession, the Dow has risen by more than 125% on the heels of a rebounding housing market, a jobs market that is delivering the lowest unemployment rate we’ve seen in five and a half years, and a strengthening financials sector that’s ripe with capital and now well prepared should another deep recession occur.
As you might imagine, not everyone agrees. A few days earlier we examined some of the Dow’s most hated companies — in essence, the companies that short-sellers are targeting the most — and found it to be riddled with metal, mining, and commodity-based stocks.
Today, we’re going to turn the tables and examine the five most loved Dow components. These are companies that just seem to consistently produce profits in any economic environment, and they often make for poor short-sale opportunities. More than just loved, these five stocks gives us insight into what to look for in steady businesses so that we can scour the markets and identify similar characteristics in other companies.
Here’s a look at August’s five most loved Dow stocks:
| Company | Short Interest As a % of Outstanding Shares |
|---|---|
| The Coca-Cola Company (NYSE:KO) | 0.61% |
| Wal-Mart Stores, Inc. (NYSE:WMT) | 0.63% |
| General Electric Company (NYSE:GE) | 0.67% |
| Microsoft Corporation (NASDAQ:MSFT) | 0.69% |
| The Procter & Gamble Company (NYSE:PG) | 0.70% |
Source: S&P Capital IQ.
Coca-Cola
Why are short-sellers avoiding The Coca-Cola Company (NYSE:KO)?
I consider the only injustice on this monthly list to be when The Coca-Cola Company (NYSE:KO) isn’t atop the most loved Dow Jones components. There are few brands, if any, that can rival the geographical diversification of Coca-Cola. With its recent expansion into Myanmar, there are now just two countries on the planet where Coca-Cola doesn’t sell its products. To further pat Coca-Cola on the back for its diversification, if you were to try one new Coke product every day, it would take you more than nine years to get through them all! With a steady stream of cash flow and a diverse range of products, short-sellers are keeping their distance from Coke.
Do investors have a reason to worry?
Nothing short of a global depression is going to cause serious worry among Coke shareholders. The Coca-Cola Company (NYSE:KO) is one of the most recognized brand names in the world, and it certainly spends a pretty penny more than its peers on advertising. Although it’s probably seen an end to its rapid expansion days, energy drinks and new offerings will keep the hamster spinning on the wheel, which should allow the company to continue to crank out slow but steady top- and bottom-line growth.
Source: WalMart, Flickr.
Wal-Mart
Why are short-sellers avoiding Wal-Mart Stores, Inc. (NYSE:WMT)?
The reason most short-sellers keep their distance from Wal-Mart has to do with its premier pricing power as America’s largest retailer, and its extremely low beta of just 0.33. To begin with, Wal-Mart is so large and capable of producing so much cash flow that it can simply undercut local business prices to drive business into its own stores and create loyal customers. The other factor here is its low beta — a measure of volatility. In this case, Wal-Mart Stores, Inc. (NYSE:WMT) is only about a third as volatile as the S&P 500. Short-sellers are rarely long-term-minded and usually out for the quick buck, which makes Wal-Mart an easy pass for many of them.
