Stocks I’d Love to Sell Short but Can’t Because I’m Using an IRA
I believe the stock market is coming up to a steep decline in prices. I have money ready to invest but I don’t want to buy into a bear market. I believe a better strategy would be to sell short until the economy bottoms out.
To find a list of possible shorts, I reviewed the S&P’s 1-Star portfolio; stocks they’ve ranked as strong sell and expect to decline in price over the next 12 months. Here is the list:
| Symbol | 12-Mo Target Price | S&P Fair Value Calculation |
| CAKE | -35% | +8% |
| CETV | -19% | -11% |
| CHU | -16% | |
| CYT | -26% | |
| DISH | -29% | -33% |
| FTE | -13% | -2% |
| GET | -58% | |
| HAR | -27% | -27% |
| HOT | -57% | -51% |
| MAR | -54% | -34% |
| PALM | -24% | -47% |
| PAYX | -18% | -8% |
| PTEN | -29% | |
| RDK | +1% | 0% |
| SNIC | -74% | |
| TIE | -35% | -43% |
| WYN | -62% |
I’ve highlighted the stocks that looked juiciest to me. I then reduced the list further. Although GET’s stock is priced at a P/E of 91, it is trading at 0.91x book value. I think a stock under book value is usually good for a long position so I’m not going to short GET. TIE is trading at 2.2x book, which is still a little low for me. I found that HOT and WYN pay a dividend. I consider dividend paying stocks to stand up better than non-dividend stocks. MAR also pays a dividend but they stopped paying in cash in 2009 and switched to stock. I consider that a bad sign so MAR stays on the list. After paring down the list, I ended up with MAR, PALM, and SNIC.
MAR (Marriott International Inc) stopped paying a cash dividend and switched to a stock dividend. Their earnings have been falling for the past 3 years and went negative in 2009. Once they start earning a profit again, their P/E will be around 50 and they are trading at 10x book.
PALM (Palm Inc) had significant negative earnings in 2009, will probably continue to in 2010, and has no significant book value.
SNIC (Sonic Solutions) also had significant negative earnings in 2009 and is trading at 10x book value.
I dove deeper into the financials of MAR to see if I agree with S&P’s target price. The reasoning is sound and a variety of valuations give me a 2010 price range of $11 to $18. That’s between a 36% and 67% loss from it’s current price of $28.00.
I made the decision to short MAR, opened my trading account, and quickly discovered that stocks cannot be sold short in an IRA. Since that is where the money is that I have available for investment, I am precluded from shorting MAR or the other two. Since I can’t short them in my actual portfolio, I’m adding them to my fantafolio so I can track how I would have done. Since I usually agree with the S&P analysis, I’m not going to do any extensive research into PALM and SNIC.
