Amid the market's collapse in September, it was no surprise that
short-selling stocks had reached a level not seen since March 2009. It was also
a huge contrarian indicator to buy stocks. Since short-selling stocks crested
and the market hit a short-term bottom, stocks have rallied, with Europe getting
more organized with respect to resolving its debt crisis. In addition, economic
news has held up relatively well or at least not shown signs of collapse. Now
earnings season is in full swing, and so far the news has been positive. Alcoa
(NYSE: AA ) missed estimates due to a sharp decline in aluminum prices during
the third quarter, but the company was adamant that it would meet growth
expectations for the remainder of the year. Late Thursday, Google (NASDAQ: GOOG
) reported results that blew away revenue and profit estimates. All the
positivity is making investors downright giddy, and when stocks go up, traders
that are covering their short positions can add fuel to market gains. The roller
coaster ride continues. However, individual stock fundamentals still matter, and
the recent rally has lifted certain stocks that can't justify their new lofty
prices. Those companies with poor financials, weak management, or declining
prospects deserve to be sold short. Here my top three candidates: Research In
Motion This poor company can't catch a break and it doesn't deserve to.
Research In Motion (NASDAQ: RIMM ), the maker of the BlackBerry, was in the news
again this week with word of a major outage in its service. While the incident
wasn't a regular occurrence, it couldn't have come at a worse time. The
company is already struggling to recover from poor management decisions over the
last few years, and it doesn't need any more negative publicity. Its core
product is losing market share. At the same time, the spotlight is back on Apple
(NASDAQ: AAPL ) with its launch of a new iPhone. Management needs to be focused
on creating value with new products and innovation, not service outages. Since
the stock bottomed, shares of RIM have rallied nicely they're up more than
20% since the end of September. That is a rally you can sell into. The die-hard
BlackBerry enthusiasts are fighting hard for the beloved device, but the writing
is on the wall for this company. Its primary advantage of mobile email delivery
on a handheld device has been usurped by the smartphone. RIM isn't that
different than Eastman Kodak (NYSE: EK ) in missing the evolution from film to
digital. Kodak is further along in the death march, but Research In Motion will
soon be at the same place. This is an easy stock to short and even more so with
recent gains in share price.
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