Tech stocks are favourites for short sellers
Published: 27 Jul 2001 16:44 BST
Investors continued to bet on sinking tech stocks -- especially Exodus Communications, Level 3 Communications and Dell Computer -- in the midst of an ever more waterlogged economy, based on data released by the Nasdaq National Market.
The Nasdaq revealed that short-interest levels rose to 4.01 billion for July, compared to 3.82 billion for June, setting a new record.
Investors who "short" stocks sell borrowed shares, hoping that the price will drop before they have to buy shares to cover their accounts. The short-interest figures are the total amount of shares on the Nasdaq that have been sold short but not yet settled up.
Short selling often reflects investors' opinion that a stock is about to sink. But an increase in short selling can often presage a rise in a stock's price, since short-selling investors will eventually have to buy shares to cover themselves.
The July figures topped the previous record set in April. The data covers all short-interest positions reported between 18 June and 10 July and settled as of 13 July.
* Exodus saw the biggest volume increase in its short interest, rising from 29.14 million shares in June to 61.25 million shares in July.
It was a good call by those short sellers. The Web infrastructure company has suffered as analysts questioned its ability to survive in a difficult economic climate.
Exodus, which reported a loss of $583.4m, or $1.05 per share, for the second quarter, has flirted with falling below the $1 mark. The stock has lost a staggering 98 percent of its value since hitting its 52-week high last September. Shares closed at $3.62 on 18 June and dropped to $1.31 on 13 July.
* Short interest in another Net infrastructure firm, Level 3, went from 42.39 million in June to 56.6 million in July. Level 3, which sells high-speed communications services, saw its net loss widen in the second quarter as customers delayed purchases or cut them altogether in the midst of the economic slowdown. Shares dropped from $5.97 on 18 June to close at $3.65 on 13 July.
* Dell rose 10.65 million to 52.83 million in July. Short sellers may have made a bad call here, as shares rose from a close of $23.92 on 18 June to $27.95 on 13 July. While sales of PCs have been in a slump, Dell has looked for other ways to bring in the bucks, including entering the network equipment market. And unlike many of its PC brethren, Dell claims it can tough it out through the slow PC market, recently reaffirming its earnings outlook for the second quarter.
* Rounding out the top five increasers, Oracle saw a rise in short interest from 47.45 million to 57.83 million, while short interest in XO Communications rose from 21.56 million to 31.23 million.
* Intermedia Communications led the list of companies that saw the largest volume decrease in short interest, dropping from 23.04 million in June to none in July. WorldCom purchased the voice and data services company earlier this month.
WorldCom itself had the second largest volume decrease in short interest, dropping to 20.09 million from 60.49 million. The company's shares went from a close of $14.99 on 18 June to $14.50 on 13 July. The data and Internet business recently recorded an 85 percent drop in second-quarter profits.
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