Monday, 28 June 2010 07:27

The Shortlist of the Shortlisted “Stocks to Short for 2010″: What We See as the Most Profitable Bear Postions for 2010

Here is a the final list of companies culled from a group of nearly 1,800 that we feel have the most profit potential for the year going forward.

This is a professional/institutional level document, but annual Retail subscribers and any subscribers who have been with me for a year ore more can email customer support for a copy as we show our gratitude for your continued patronage. Professional and Institutional subscribers should download this document in its entirety here: icon Financial and Non-Financial Short Scan Review & Analysis - Pro (392.88 kB 2010-06-28 05:33:44)

This is the culmination of four blog posts:

  1. 1. Non-Financial Companies to Short in 2010: methodology and short listing results;
  2. 2. BoomBustBlog Bankruptcy Search: Focus on British Petroleum and Collateral Damage: an objective look at the prospects of BP’s potential insolvency;
  3. 3. The BoomBustBlog Pan-European Sovereign Debt Crisis Bankruptcy Search:  a review the financial and bank holding companies whose economic and financial outlook do not support their current valuations;
  4. 4. and On Shorting Stocks, Double Dips and the UAL/CAL Merger: a drill down of suspect airlines stocks.

Note: The embedded spreadsheets contained in the posts above should be used to access the extensive fundamental data used in calculating the results below.

After two separate and rigorous short exercises, one each for financial and non-financial companies, we have narrowed down the list of potential candidates from nearly 1,800 companies to just 10 (with 13 runner-ups) – all of which we are confident are materially overvalued given their current and prospective financial condition and economic  outlooks. What is of particular interest is the fact that a full 50% of these companies landed on our computer screens as finalist in 2008, before the great market melt-up of 2009. They were overvalued and in bad shape during the lower prices of the turbulent times, hence they are significantly more so after seeing their share prices ride the wave of irrational, recession double-dipping, "recovery" exuberance. We have even released forensic analysis of 4 of these 10 companies over the last two years, and all of the banks in the list were also members of the original Doo Doo 32 of May 23, 2008. Members of this list provided significant profits for bears and short sellers as their prices gyrated and collapsed and the market began to realize the precarious situation that they were in. Now that low volume melt-ups are [starting to] giving way to realistic fundamentals, one can expect more of the same. The more things change, the more they stay the same. We plan to refresh the analysis of the repeat offenders, and offer fresh analysis of those who are new to the list.

The two separate short scans that we have conducted were for the non-financial sector and the financial/banking sector resulted in a short-list of 23 companies, with 10 of those companies targeted for full blown forensic analysis, time and resources permitting.

Below is the outline of the methodology used to produce them as well as a select excerpts from one of our previous reports on a particularly egregious "valuation" repeat offender that has proved profitable in the past whose macro outlook tied to the housing sector is a gloomy as ever - despite a near 100% pop in its share price. This the obligatory "freebie" that I toss in to entice non-subscribers to take the plunge. This particular "freebie" happens to be quite actionable, at least in my humble opinion.

One of the members of the final shortlist, covered in BoomBustBlog quite profitably in early 2009, is USG. It is directly tied into the housing market through starts and renovations, as well as the commercial real estate market through new construction. Anyone who has followed me for any significant amount of time knows that I have declared all of those markets to be practically dead since 2007 and to remain so for the foreseeable future. Reference As I Made Very Clear In March, US Housing Has a Way to Fall:

The government incentives are just market interference and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest

Let’s take a look at some charts sourced from the upcoming BoomBustBlog subscriber “A Fundamental Investor’s Peek into the Alt-A and Subprime Market”should be released withing 24 hours or so. This release will include all of the raw data necessary for users to run their own calculation and draw their own conclusions. update, which

Click to enlarge
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As for the commercial real estate market (a topic wherein I have a particularly rigorous update coming up), my opinions can be found in depth here: Commercial Real Estate is Pretty Much Doing What We Expected It To Do, Returning to Reality:

Moody’s has released data that shows CRE has fallen for a second straight month. Thus far, things are rolling along exactly as we anticipated in our  CRE 2010 Overview (2.85 MB 2009-12-16 07:52:36), available for free download.

moody's real estate research

So, where does this leave USG? Well, as elaborated back in 2008...

and on page two of said analysis...

And page 3...

Much of the scenarios that contributed to the short thesis then are still present now, save the fact that the US government has practically shot its wad in an attempt to artificially support the housing market and the municipalities in the US and sovereign states abroad have taken on so much debt to participate in this business cycle "rejiggering" that they will be literally crowding out the private sector in the near future and putting upward pressures on interest rates at a time when many entities are still quite fragile, the US and much of (austerity suppressed) Europe enters a double dip recession (see the Pan-European Sovereign Debt Crisis for our early and accurate calls on that malaise), and the housing market resumes its downward spiral...

Lest we forget, we also finalized our financial short scans as well, and have picked 3 companies out of roughly 180. All three are members of the original Doo Doo 32 of May 23, 2008,  which goes to show that the good times from 2008 are probably due to return sometime soon.

Again, Professional and Institutional Subscribers can download the source document which contains all 23 of the shortlisted, short list companies in order of preference, including what we consider the 10 finalists, here icon Financial and Non-Financial Short Scan Review & Analysis - Pro (392.88 kB 2010-06-28 05:33:44).

Subscribers are free to use the ample fundamental data in the blog posts inline spreadsheets (see sidebar above) to retrace our logic or perform their own analysis to come to an alternate conclusion. Annual Retail subscribers and any subscribers who have been with me for a year ore more can email customer support for a copy as we show our gratitude for you continued patronage.

Cheers,

Reggie Middleton

Last modified on Tuesday, 29 June 2010 06:39

1 comment

  • Comment Link whiteshadow Monday, 28 June 2010 12:56 posted by whiteshadow

    Mr. Reggie,

    I read your list of 23, boo doo list n saw JPM. I know that you are negative about them due to their fx exposure...but is it wise to short them,,,,

    o i did email you again today, would be great if I can finally get in touch,

    thanks

    Report
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