How an End-of-Quarter Phenomenon Could Bolster These 3 Outperformers

Herbalife Ltd. (HLF), Netflix, Inc. (NFLX), and Palo Alto Networks Inc (PANW) could soon get a boost from portfolio managers

Alex Eppstein
Sep 16, 2015 at 2:50 PM
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Earlier today, Schaeffer's Senior Quantitative Analyst Rocky White explained how "window dressing" can impact stocks. Specifically, by shuffling their portfolios to make them look as good as possible by quarter-end -- when they need to divulge their holdings -- fund managers can end up amplifying gains on long-term winners and exacerbating losses on losers. Three outperforming stocks that could stand to benefit from this phenomenon in the next couple of weeks are nutritional supplements marketer Herbalife Ltd. (NYSE:HLF), streaming content provider Netflix, Inc. (NASDAQ:NFLX), and cybersecurity firm Palo Alto Networks Inc (NYSE:PANW).

HLF has been on fire in 2015, soaring over 50% to trade at $56.75 -- and side-stepping August's broad-market bloodbath. In fact, the stock's six-month returns are upwards of 64%, with its 10- and 20-week moving averages acting as support throughout this time frame.

With the security's upward movement showing no signs of relenting, short sellers (including Bill Ackman) and option bears may be ready to throw in the towel. A lofty 28.8% of HLF's float is sold short, representing over four weeks' worth of pent-up buying power, at typical volumes. What's more, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.74 ranks in the 87th annual percentile. Should Herbalife Ltd. finish the quarter strong, a capitulation among these doubters could spell tailwinds.

Meanwhile, NFLX has more than doubled this year to hover near $103.50, and boasts a six-month return of nearly 59%. In fact, the stock is the top-performing component on the S&P 500 Index (SPX) in 2015, making it an especially attractive option for portfolio managers.

This upside momentum could soon have option traders turning tail, as well. Netflix, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 1.01 outstrips nearly four in five readings taken during the past year. A mass exodus of these bearish bettors could intensify demand for the stock.

Finally, PANW boasts a year-to-date lead of 48.5% at $182.02. Over the prior six months, the equity's gains have totaled nearly 25%, helped by a late-August bounce off its 160-day moving average. On a relative-strength basis, the stock has outperformed the broader S&P 500 Index (SPX) by close to 12 percentage points during the last month.

Despite these impressive technicals, short-term option speculators have rarely been more put-focused toward Palo Alto Networks Inc. Specifically, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.05 registers above all but 17% of comparable readings taken in the past 12 months. If these skeptics begin to re-evaluate their opinions -- following the lead of the brokerage bunch -- they could provide PANW with another catalyst higher.

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