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Short Interest Update: Applied Materials, Inc. (AMAT)

Why AMAT could benefit from increased pessimism

by 10/31/2013 11:04:02 AM
Stocks quoted in this article:

A number of stocks saw notable increases in short interest over the latest reporting period, including meat producer Tyson Foods, Inc. (NYSE:TSN), discount retailer Dollar General Corp. (NYSE:DG), and semiconductor name Applied Materials, Inc. (NASDAQ:AMAT). Here's a closer look at these three technical standouts, all of which could trek higher due to this growing skepticism.

Tyson Foods, Inc. has performed well on the charts, advancing about 42% so far this year -- and 64% on a year-over-year basis -- to trade at $27.56. Still, short interest soared by 62.5% during the most recent reporting period, and now accounts for 12.5% of the security's available float. In fact, it would take more than nine sessions to buy back these shorted shares, at TSN's average daily trading volume. This ample amount of sideline cash could spark a short-covering rally, should the stock add to its longer-term gains.

Dollar General Corp. has also had a banner 2013, climbing nearly 32% year-to-date, and outpacing the broader S&P 500 Index (SPX) on a relative-strength basis during the most recent three-month time frame. Nevertheless, the equity saw a 33.6% spike in short interest during the first half of October, bringing the number of shares sold short to more than 5 million. In other words, the security could end up benefiting from a short-squeeze scenario down the road, which could push DG north of its current perch at $58.10.

Finally, Applied Materials, Inc. has surged more than 57% since the beginning of the year, and touched a new multi-year high of $18.18 on Oct. 14, despite being initiated at J.P. Morgan Securities with a tepid "hold" rating. However, short interest grew by 36.3% during the latest reporting period, and by 83.6% from mid-September to mid-October. With almost 29 million shares currently sold short, an exodus by the bears could serve as a contrarian tailwind for the semiconductor stock.

This doubtful attitude toward AMAT extends beyond the short-selling crowd. The stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.41 ranks higher than 71% of similar readings taken during the past year. Or, in simpler terms, traders have been buying to open puts relative to calls at an accelerated pace over the last two weeks. Peak put open interest of 14,271 contracts at the out-of-the-money November 17 strike could end up translating into options-related support, as front-month expiration approaches.

Also of note, only seven covering analysts have deemed the stock worthy of a "buy" or better endorsement, compared to seven "holds," and one "sell" suggestion. What's more, AMAT's average 12-month price target of $17.71 denotes a discount to the security's present price at $17.99. This leaves plenty of room for future upgrades and/or price-target hikes, which could add more fuel to the equity's technical fire.

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