With the exception of a few isolated stocks, this has not been a good year for short sellers and. With a healthy tape and a huge pile of cash, an estimated $11 trillion that is on the sidelines, things probably won’t get a lot better for the shorts anytime soon. A new report from the tech analysts at UBS points to five enterprise technology stocks that, despite solid profiles, have a large amount of stock sold short as a percentage of the float. Good news for these stocks will be bad news for the short sellers.
As we close in on the end of the year, many hedge funds and mutual funds have underperformed the assigned benchmarks. Portfolio managers will be looking to paint their books with top tech names to try to cover up some earlier underperformance and generate a boost. If one of these stocks starts to see big natural buying, a short squeeze could drive it even higher.
Tableau Software Inc. (NASDAQ: DATA) has taken a huge dive since hitting 52-week highs of over $100 back in February, and it still has almost 10% of the float sold short. This sell-off comes despite solid earnings reported in the first three quarters of the year. Tableau is one of the market leaders when it comes to big data and is a global leader in rapid-fire, easy-to-use business intelligence software. UBS sees the company as perhaps the most compelling way for investors to play big data for the mass market, where continued execution momentum and conservative guidance should provide sustained upside and material upward estimate revisions.
The UBS price objective for the stock is listed at $80, and the Thomson/First Call consensus price target is higher at $86.67. Shares closed Monday at $81.81.
FireEye Inc. (NASDAQ: FEYE) is a top cybersecurity company, and it has 18.3% of the float sold short. The company has announced that it identified a group of hackers that it says are responsible for attacks against publicly traded companies in an attempt to influence the stock market. The stock was absolutely crushed in the October sell-off, and investors now have the opportunity to add a top software security stock at a very reasonable entry point. FireEye also recently announced the new release of FireEye Email Threat Prevention Cloud that adds the traditional email security features of anti-spam and antivirus protection to its advanced threat detection capabilities. The company is a favorite for product resellers focused on advanced persistent threat protection for clients
UBS has a $40 price target and the consensus target is $42.35. The stock closed on Monday at $30.28. FireEye traded at almost $100 earlier this year.
Lexmark International Inc. (NYSE: LXK) has been a frustrating stock for investors over the past few years and has almost 20% of the float sold short. As the printing market has diversified, and smaller, more nimble competitors have jumped into the market, Lexmark has struggled to retain its core business customer. In an attempt to jump-start its global business, the company recently acquired Swedish tech firm ReadSoft.
Lexmark pays shareholders a tidy 3.4% dividend. The consensus price target is $38.57. Lexmark closed above that level Monday at $42.39.
Teradata Corp. (NYSE: TDC) has just under 10% of the float sold short. This global leader in analytic data platforms, marketing applications and consulting services helps organizations become more competitive by increasing the value of their data and customer relationships. The company posted outstanding third-quarter numbers, topping analysts’ estimates for both earnings and revenues.
The UBS price target for the stock, which is rated Neutral, is $43. The consensus target is $44.48, but note that shares closed Monday at $44.43.
VMware Inc. (NYSE: VMW) was a top stock to buy on Wall Street until back-to-back mediocre earnings releases. Short sellers have sold almost 14% of the float. The company is still a leader in cloud storage software, and its cloud computing service is a new offering for their customers. The vCloud Hybrid Service has not yet been designed or marketed as a standalone public cloud. Many Wall Street analysts believe that on a pricing basis it is one of the more expensive offerings. The ability to tie its software solutions in with public cloud service may be a huge winner in the future.
The UBS price target for the Buy-rated stock is $106, and the consensus target is $103.10. VMware closed Monday at $87.01 a share.
The solid thing for patient aggressive investors is that all these stocks are decent buys on just their own merits. Add in the possibility that the short sellers may have to buy the stock to cover a trade gone sour and the upside could be even better.
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