Stocks quoted in this article:
Today's scan of outperforming low-priced stocks focuses on names with a high percentage of their float sold short. If short sellers begin take leave of these rallying stocks, they could perpetuate the uptrend. Names that caught our attention were two biotech concerns -- PDL BioPharma Inc. (NASDAQ:PDLI) and Celldex Therapeutics, Inc. (NASDAQ:CLDX) -- and telecommunications services name 8 x 8, Inc. (NASDAQ:EGHT). The data below comes courtesy of FinViz.
PDLI has increased in value by roughly one-third during the last 52 weeks and hit a new annual high in yesterday's session. The skeptics are still vocal, though, as more than 12% of the stock's float is sold short. At the equity's average daily volume, it would take more than eight trading days to cover all existing shorted shares, providing ample fuel for a short-covering rally.
What's more, analysts have yet to crowd the bullish bandwagon. Just five brokerage firms currently follow PDLI, only one of whom rates the stock a "buy." What's more, the consensus 12-month price target of $6.67 is actually below the stock's current resting place. A shift toward more optimistic terrain from Wall Street could also inspire additional buying pressure.
EGHT also stands to benefit from future price-target hikes; the average 12-month outlook of $6.55 is just above the stock's current price. This skepticism comes despite the stock's solid uptrend that ushered the shares to a new multi-year high yesterday.
Meanwhile, more than 10% of the stock's available float is devoted to the short side, and it would take just over eight trading days for all of these positions to be closed. We have also noticed a pullback in bullish speculation among option players. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the call/put volume ratio has shifted from 16.56 (in the past 50 sessions) to 6.96 (in the past 10 sessions).
Finally, CLDX hit a new high of $6.61 last week, notching its best level since June 2010. The stock has also outperformed the S&P 500 Index (SPX) by nearly 14 percentage points in the last two months (on a relative-strength basis).
And yet, short sellers have continued to add positions so that nearly 11% of the equity's float is sold short. The resultant short-interest ratio of 8.3 days to cover provides a nice supply of potential short-covering ammunition. Analysts, however, are big CLDX fans. All seven brokers following the company have given the stock a "strong buy" vote.
Here are some additional articles of interest: