Fundamental Short Selling Research

Eric Fernandez, CFA

TwoRiversAnalytics

Equity Bottom-Up

<ul>
<li>This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry. </li>
<li>The reasons for the margin increases are sometimes unsustainable or fraudulent. The  critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation. </li>
<li>These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.</li>
</ul>


This model seeks companies that are potentially “overearning”, defined as companies with unusually high margins relative to their own history or relative to the industry. 
The reasons for the margin increases are sometimes unsustainable or fraudulent. The  critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and/or the stock’s valuation. 
These shorts tend to have moderate to higher betas, higher valuations due to recent strong results and good short responses to subsequently disappointing earnings.


Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com

Over-earners are fertile hunting ground for shorts if the reasons for the margin increase are unsustainable or fraudulent.  In addition to margin sustainability, a critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and valuations.  Here are some of the names we're seeing now.

Over-earners are fertile hunting ground for shorts if the reasons for the margin increase are unsustainable or fraudulent.  In addition to margin sustainability, a critical judgement involves to what extent unsustainable margins are embedded in a company’s forecasts and valuations.  Here are some of the names we're seeing now. 

Overearning Short Candidates: Guess?, MarineMax, Atkoe, HCA Health, Nucor

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

The risk of a correction due to a “second wave” of infections has given way to optimism over increased monetary and fiscal stimulus and a potential COVID-19 steroid treatment. For now we view recent weakness as a countertrend move that helped correct the overbought conditions we noted last week. As long as the S&amp;P 500 is above the 2940-2980 support zone we remain bullish and view this as a buyable pullback. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary and Technology.

The risk of a correction due to a “second wave” of infections has given way to optimism over increased monetary and fiscal stimulus and a potential COVID-19 steroid treatment. For now we view recent weakness as a countertrend move that helped correct the overbought conditions we noted last week. As long as the S&amp;P 500 is above the 2940-2980 support zone we remain bullish and view this as a buyable pullback. In today’s report we highlight attractive Groups and stocks within Consumer Discretionary and Technology.

U.S. Equity Strategy: Signs Point To Healthy Pullback Opportunity

The S&amp;P 500 is holding above 3000 and the 200-day MA breakout level. As long as the S&amp;P 500 is above this support level it tells us the bulls are in control. If there is a break below 3000, the next support levels to watch would be 2980 followed by the much bigger 2934.49 (the 61.8% Fib retracement) support level. Similarly, breakouts in the Dow Jones Industrials, small-caps (Russell 2000), mid-caps (Russell Mid Cap, S&amp;P 400), and the MSCI ACWI have held strong and all of these indexes show RS improvement. This is bullish as it indicates improving breadth.In today’s report we highlight attractive Groups and stocks within Consumer Discretionary: Sporting Goods/Leisure Products, Casinos &amp; Gaming, Small-Cap, Retailers, Discount/Variety, and Retailers, Sporting Goods.

The S&amp;P 500 is holding above 3000 and the 200-day MA breakout level. As long as the S&amp;P 500 is above this support level it tells us the bulls are in control. If there is a break below 3000, the next support levels to watch would be 2980 followed by the much bigger 2934.49 (the 61.8% Fib retracement) support level. Similarly, breakouts in the Dow Jones Industrials, small-caps (Russell 2000), mid-caps (Russell Mid Cap, S&amp;P 400), and the MSCI ACWI have held strong and all of these indexes show RS improvement. This is bullish as it indicates improving breadth.In today’s report we highlight attractive Groups and stocks within Consumer Discretionary: Sporting Goods/Leisure Products, Casinos &amp; Gaming, Small-Cap, Retailers, Discount/Variety, and Retailers, Sporting Goods.

U.S. Equity Strategy: Bulls Remain In Control

United States

MarineMax, Inc. retails recreational boats. The Company sells new and used boats, parts and accessories, as well as offers repair services. MarineMax serves customers throughout the United States.

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Marinemax Inc (HZO US)

Overearning Short Candidates: Alpha Metall, MarineMx, ON Semi, Kulicke & Soffa, Pool Co, Century Com

Over-earners are fertile hunting ground for shorts if the margin increases are either unsustainable or fraudulent. This week: Alpha Metall,...

Eric Fernandez, CFA

Overearning Short Candidates: Guess?, MarineMax, Atkoe, HCA Health, Nucor

Overearners are fertile hunting ground for short candidates. We highlight several names here as well as our updated overearners model update.

Eric Fernandez, CFA

U.S. Equity Strategy: Signs Point To Healthy Pullback Opportunity

The risk of a correction due to a “second wave” of infections has given way to optimism over increased monetary and fiscal stimulus and a potential...

Vermilion Research

U.S. Equity Strategy: Bulls Remain In Control

The S&P 500 is holding above 3000 and the 200-day MA breakout level. As long as the S&P 500 is above this support level it tells us the...

Vermilion Research

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