How to avoid disaster
Watching short-interest can help you keep potential blow-ups out of your portfolio.
March 1, 2002: 4:28 p.m. ET
By Adam Lashinsky
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NEW YORK (CNN/Money) - An investing generation ago -- that would be 1998 -- readers clamored for information on IPOs. People were desperate for triple-digit one-day gains, and a slew of Web sites sprang up to play to that greed.
With the market still in something of a nuclear winter, nobody cares much about new deals. Today's hot new thing? Short-selling. After all, the guys who have been betting that stocks will go down are the only ones who've been making any money.
And for individuals who've been burned by one blow-up after another, they want to know if the shorts are coming after their stocks. In response to a column here Monday on the rise in short-selling (see column), many of you asked how to track the numbers of shares sold short in a particular stock. This is important information because often times a rise in short interest can predict a stock's fall.
Getting such information has typically been tough. The print editions of the Wall Street Journal and Barron's carry data on short-selling -- but that's a messy, tedious and incomplete process.
How to do it
In fact, the best free source of short information happens to be on the Nasdaq Web site. Consider the case of a heavily shorted stock, Genesis Microchip (GNSS: up $2.01 to $25.50, Research, Estimates).
Enter the stock's ticker -- GNSS -- at the home page, and select the "InfoQuotes" option. Then click on "fundamentals." There, you'll find a link to 12 months' worth of "short-interest" data (though it's the Nasdaq site, it's got data for New York Stock Exchange stocks too).
In Genesis, you've got a stock whose short-interest volume expanded nearly 20-fold since last March. Interestingly, in February, shorts gave up on Genesis Microchip, whose stock had been steadily -- but not dramatically -- falling all year.
"You see that pattern all the time," says a veteran short seller who remains short Genesis. "The cowards cover when no catalyst happens. And then it blows up." Indeed, shares in the chip-maker fell 43 percent Thursday after the company lowered guidance for revenues. The shares are now back to a level last seen in May -- just about when the short interest really started picking up.
Go punch in one of your stocks -- you might see something that scares you.
Pulling the trigger: Sometimes, of course, the bears overreact. Hanover Compressor (HC: down $0.45 to $17.10, Research, Estimates) was the subject of a column here Feb. 11 (see column) that suggested investors had been too harsh on Hanover because of an association with Enron and unrelated accounting questions.
Shares of Hanover, a maker of energy-industry equipment, stood at $12.40 when that column ran but this week traded nearly to $18 after -- that's right, after -- the Houston company announced it would re-state earnings for 2000 and 2001.
Does Hanover have a credibility problem? Yes. That's why its shares fell from the mid-$20s at the beginning of the year to almost $10 last month. Still, it turned out that a market value of about $800 million for a company with forecasted 2002 earnings before interest, taxes, depreciation and amortization of about $425 million was just too low.
Yves Siegel, a Wachovia Securities analyst quoted here last month suggesting Hanover's shares could double made his opinion official this week when he lowered his price target from $39 to $25. For what it's worth, the source who originally suggested I investigate Hanover recently sold his position.
Send e-mail to Adam at adam_lashinsky@timeinc.com.
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