From SmartMoney:
One interesting story our screen turned up is Flextronics International (FLEX), a Singapore-based manufacturer of communications, computer, electronics and medical devices for the likes of L.M. Ericsson Telephone (ERICY), Cisco Systems (CSCO) and Koninklijke Philips Electronics (PHG). In the January report from the NASDAQ, the company's short interest stood at 10.6 million shares, down slightly from 12.5 million in December. About 10% of the outstanding shares were shorted as of the middle of January.
In the midst of this heavy shorting, the company produced a "blow-out" earnings report on Jan. 20. That led to upgrades from CIBC World Markets and Deutsche Banc Alex. Brown, along with a 20% share price rise over two weeks. Talk about the beginning of a short squeeze.
According to CIBC World Markets analyst Michael Zimm, the short interest can be traced to the company's acquisition of Dii Group (DIIG). Some shorts are probably betting that the company will have a tough time digesting Dii, he says, while others may figure that a shortage of cell-phone parts could mean lower earnings if the company can't fill its orders.
These fears are mirrored by one San Francisco-based hedge-fund manager, who says that concerns over available parts are very real on the Street. "On Flextronics, the word is that things are soft out there for manufacturers," he says. He points to increasing accounts receivable and inventory numbers as signs that the company has slowed down. (Those increases, however, appear small.)
Another possible explanation for the short interest, according to Bear Stearns analyst Thomas Hopkins, is that traders are shorting Flextronics because acquiring companies often slip (and the acquirees often rise, as Dii has) at the time of a merger. Hopkins has nothing but incredulity for Flextronics shorts. "On a fundamental basis, people shorting the stock are insane," he says. "God help those short sellers out there."
Should there still be heavy short interest when the next short report comes out on Feb. 28, CIBC's Zimm says, "I'd take it as a big, big plus. Absolutely." The reasoning goes that continued short interest could mean a continued short squeeze. |
