The best thing about the stock market is that you can make money in either direction. Historically, stock indexes have tended to trend up over the long term. But when you look at individual stocks, you’ll find plenty that lose money over the long haul. According to hedge fund institution Blackstar Funds, even with dividends included, between 1983 and 2006, 64% of stocks underperformed the Russell 3000, a broad-scope market index.
A large influx of short-sellers shouldn’t be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let’s look at three companies that have seen a rapid increase in the number of shares sold short and see whether traders are blowing smoke or if their worry has some merit.
| Company | Short Increase Feb. 15 to Feb. 28 | Short Shares as a % of Float |
|---|---|---|
| Jarden Corp (NYSE:JAH) | 142.4% | 8.2% |
| CommonWealth REIT (NYSE:CWH) | 53.1% | 3.8% |
| US Airways Group, Inc. (NYSE:LCC) | 47.7% | 19.7% |
Source: The Wall Street Journal.
Is Jarden sizzling or souring?
There’s very little denying the fact that a rebound in the housing sector and continued success in sales of outdoor equipment is playing perfectly into the hands of Jarden Corp (NYSE:JAH), a maker of outdoor and branded consumable products. Jarden owns a portfolio of easily recognizable brand names, such as Crock-Pot, Coleman, Mr. Coffee, and Oster, and utilized 3.5% organic net sale growth to burst to a new 52-week high. You might say short-sellers are getting quite the squeeze at the moment, but I’m slowly being won over to their cause.
While I like what Jarden Corp (NYSE:JAH)’s done with controlling costs and making long-term investments in its core brands, 3.5% organic growth isn’t enough to cut it at a company valued at 21 times trailing earnings. Jarden had a lot fall its way in the fourth quarter, with a big earnings boost thanks to the absence of a writedown in fourth-quarter 2011, and the timely rebound of the housing market. It won’t have those same benefits next year, which could stop this rally dead in its tracks.
I will give Jarden Corp (NYSE:JAH)’s management team credit for accelerating its share repurchase program and attempting to boost shareholder value, but upside without additional acquisitions seems rather limited after its amazing run.
The roof, the roof, the roof is on fire
Is Nero fiddling while Rome burns? That’s what activist hedge fund investors Corvex Management and Related Fund Management would like you to believe of CommonWealth REIT’s executive committee.
In late February, CommonWealth, an office real estate investment trust, dove on news that it was planning a 27-million-share cash-raising offering. The very next day, Corvex and Related Fund Management released an open letter demanding CommonWealth retract its share offering, and offered its take as to how CommonWealth could be worth as much as $50 per share if the company’s management team were replaced. The investment firms, which owned 9.8% of the company’s shares at the time of the letter, noted that management’s interests weren’t tied to investors’ interests, and that they would consider purchasing the outstanding shares of CommonWealth at a nice premium.
