Contrarian Stocks (ZNGA, YELP, SWY)

Hater-Aid (Big Pic)

Investors have been drinking the Hater-Aide when it comes to these 3 heavily-shorted stocks. Is it time to play contrarian?

The stocks in question are Zynga (ZNGA) Yelp (YELP) Safeway (SWY). All of which have greater than 25% short interest!

A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company's risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains.

Let's kick it off with the least speculative stock, Safeway (SWY). Safeway pays out a nearly 4% dividend, but it's down -13% YTD. Why would short sellers target Safeway? Because of their large debt burden of 6.38B. We hardly think Safeway is going to go under. Safeway looks like a great buy right here for a long term hold.

Over the past 12 months Safeway Inc (SWY) shares have traded between $15.93 and its 52-week high of $24.28.  Safeway Inc shares are now trading with a P/E Ratio of 10.3 and EPS of 1.73.

Shares of ZNGA were pummeled today to the tune of 8%. Just when you thought shares had carved out a bottom, down it goes for a re-test. We think this will be the final re-test and shares should rise from here. After all, the stock has decent fundamentals, a forward P/E of 15, and cash that equals 1/4 of their market cap. When you see articles from the Motley Fool that say don't touch ZNGA with a 10 foot pole, but offer no valid reasons why other than Facebook had a bad IPO, you know it's time to bet against the herd mentality.

Over the past 12 months Zynga Inc (ZNGA) shares have traded between $5.51 and its 52-week high of $15.91.  Zynga Inc shares are now trading with a P/E Ratio of 0 and EPS of -1.3.



Lastly, YELP is down 23% YTD. Apple just announced a deeper integration with Yelp, which could be the catalyst it needed to turn things around. I was a bit of a YELP skeptic up until the last few months, when I actually started using the Yelp app. If they can monetize, YELP could be a great investment.

Over the past 12 months Yelp Inc (YELP) shares have traded between $14.1 and its 52-week high of $31.96.  Yelp Inc shares are now trading with a P/E Ratio of 0 and EPS of -0.55.



I wish there were more articles online regarding this type of thing. Convergence theory (crowd theory) shows that people will go along with everyone else, just so they aren't left out. If more people would stick to their guns and not sell because some idiot at Motley Fool said so - the market would be doing a hell of a lot better.

The Motley Fool has to be the worst investing website on the Internet. Every time I read 'foolish takeaway' or CAPS ratings (whatever that is) I throw up in my mouth a little bit. How they manage to get by without providing useful information, I have no idea. And why does every single article end with "The Steve Jobs betrayal" or "death of the PC"? They should just throw in the towel.

Anyway, enough ranting. Thanks for the comment.