US stocks are vacillating between the positivity of strong earnings reports and the negativity of soft economic data. Short-sellers are on the prowl, looking to exploit weakness in heavy-volume names. Here are the 10 most shorted S&P 500 stocks. They are ordered by percentage of float sold short, from heavily shorted to most heavily shorted. If momentum picks up, these stocks could be susceptible to a short squeeze.
10. CMS Energy is a utility in Michigan. Its stock has gained 28% during the past year, outpacing the Utilities SPDR , which is up a more modest 7%.
Second-quarter net income increased 6.5%, but earnings per share more than doubled to 39 cents. Revenue increased 9.1%. The stock trades at a price-to-projected-earnings ratio of 11, a 14% discount to its peer average. It offers a 3.7% dividend yield with a safe payout ratio of 51%.
9. United States Steel is a metals manufacturer. Since 2007, its stock has dropped 23% annually, on average. Its second-quarter loss narrowed to $25 million, or 17 cents a share, from $392 million, or $2.92, a year earlier. Revenue doubled.
U.S. Steel sells for a forward earnings multiple of 8.1, a 48% discount to its peer average. Roughly 64% of analysts covering the stock rate it "buy." A median target of $57.30 implies 32% of upside.
8. American International Group is an insurance company. Management is pursuing asset sales to repay government loans. The company has not yet released its second-quarter results. Analysts expect AIG to have earned 99 cents, on an adjusted basis, during the period.
UBS values the stock at $40, implying that it is undervalued by 5%. KBW, on the other hand, offers a price target of $6, suggesting 84% of downside.
7. AutoNation sells automotive parts and services. Its stock has gained 17% during the past 12 months, beating U.S. indices. Second-quarter net income increased 29% to $47 million, but earnings per share ascended just 3.3% to 31 cents. Revenue stretched 20%.
The stock trades at a price-to-book ratio of 1.8, a 33% discount to the specialty retail industry average. Around 27% of researchers rate the stock "buy" and 64% rank it a "hold."
6. GameStop sells video and computer games. Fiscal first-quarter net income increased 6.7% to $75 million, but earnings per share advanced 14% to 48 cents, boosted by a smaller float.
Revenue grew 5%. GameStop trades at a price-to-projected-earnings ratio of 7.1 and a price-to-cash-flow ratio of 5 — 50% and 54% discounts to peer averages. Of analysts covering the stock, 72% rate it "buy." A median target of $25.56 suggests a return of 31%.
5. Eastman Kodak sells imaging products worldwide. Its second-quarter loss narrowed 11% to $168 million, or 62 cents a share, from $189 million, or 71 cents, a year earlier. Revenue dropped 18%.
Eastman sells for six times trailing earnings seven times cash flow — 63% and 21% discounts to industry averages. Just 14% of researchers rate Eastman "buy." A median target of $6.50, though, suggests the stock is 62% below fair value.
4. First Solar makes thin film panels and designs photovoltaic systems. Since 2007, it has more than doubled sales each year. It announced second-quarter results yesterday. Earnings per share dropped 13% to $1.84, hurt by lower average selling prices per module and higher operating costs. But management raised its 2010 earnings guidance to a range of $7 to $7.40 a share.
Manufacturing costs fell 13% to 76 cents a watt. Around 59% of analysts covering First Solar rate its stock "buy."
3. Diamond Offshore Drilling has suffered from the deep-sea oil-drilling moratorium that resulted from the BP spill. Second-quarter profit tumbled 42% to $224 million, or $1.61 a share.
The stock has fallen 29% in the past three months, underperforming indices. It trades at a forward earnings multiple of 8.4, a 62% discount to the industry average. Roughly 18% of analysts rate the stock "buy."
A median target of $67.30 implies 13% of upside.
2. Sears Holdings owns the Sears and K-Mart stores as well as the Kenmore, Craftsman and Die Hard brands. Its stock has gained 4% during the past year, but has tumbled 44% in the past three months.
Fiscal first-quarter net income decreased 38% to $16 million, or 14 cents a share, as revenue remained steady. The stock sells for a price-to-projected-earnings ratio of 29, a 92% premium to its peer average. No analysts rate the shares "buy."
1. Mylan makes generic and specialty pharmaceuticals. Second-quarter adjusted earnings gained 16% to 37 cents, though GAAP earnings declined 16% to 16 cents. Revenue climbed 8%. Mylan shares have rallied 35% in the past year, but have fallen 20% in the past month.
Of analysts covering Mylan, 12, or 63%, rate its stock "buy," six rate it "hold" and one ranks it a "sell." A median target of $23.70 suggests a return of 36%.
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Disclosures:
Disclosure information was not available for Lynch or his company.