Often times, common sense has no place in the stock market. If anything were really, truly obvious, a lot more people would be making a lot more money from the stock market than already are. However, while the deceptively simple approach to stock picking can often times land an investor in hot water, it’s also possible that getting too bogged down in complex valuations and technical analysis can sometimes lead an investor to overlook some broader truths. So, here are five companies that would seem to be headed for trouble in 2012 based on some fairly broad factors.
Defining conventional wisdom in the stock market isn’t easy, but for the purposes of this list, there are three simple tools being used: insider ownership, insider transactions, and float short. Each of these five companies has insider ownership of lower than 5 percent, have insider sales exceeding 20 percent in the last six months, and have a float short of higher than 25 percent. In each case, these different criteria could be a double-edged sword and reading too much into them could lead to overlooking a company that’s actually fairly strong. However, taken as a whole, these three factors could be painting a fairly clear picture one could miss when standing too close. Namely, if the company’s management doesn’t own much of its stock, are selling what they do own, and investors on the whole seem to be betting that shares are going to drop, maybe it’s better just to read the writing on the wall.
OCZ Technology Group Inc. (OCZ)
OCZ is a creator of solid state drives for computing devices. This San Jose, CA-based company had an up and down year in 2011, finishing on an upswing that left the company up almost 50 percent for the calendar year. However, the market appears to think OCZ is due for another stumble, as the float short for the company exceeds 40 percent. Add to this a rate of insider ownership of under 0.75 percent and a nearly 50 percent rate of insider sales in the past six months and OCZ could be a stock on the verge of a downturn.
Tesla Motors (TSLA)
Tesla Motors is a Palo Alto, CA-based automaker that is focused on bringing luxury, high-performance electric vehicles to the market. The company presents a novel approach to the electric vehicle that seems to go against the grain of utility that currently persists in the market. However, this business model doesn’t seem to have convinced everyone. Tesla’s insider ownership is a mere 0.2 percent, a figure it arrived at after a sell-off of insider shares that exceeded 70 percent over the last six months. Add to this the fact that, as of December 15th, the float short was more than 50 percent, and Tesla might not be the investment vehicle to ride in.
First Solar (FSLR)
It was a bust year for First Solar in 2011 as the Arizona-based solar panel maker suffered through low prices caused by oversupply. A glut of cheap Chinese solar panels hit the market and cut the legs out from under First Solar. The company has since altered its approach to remain competitive, including a new focus on building panels for power plants, but the market appears to remain skeptical. First Solar currently has a float short of over 35 percent while insiders only own 0.2 percent of shares due to a nearly 78 percent sell-off in the last six months.
Gamestop is a multichannel retailer of games for consoles and PCs. The company went through peaks and valleys last year before settling up 15 percent, but there appears to be some skepticism about its potential for long-term profits moving forward. Gamestop only features a rate of insider ownership at 0.21 percent that’s seen over 80 percent of insider owned shares sold in the last six months. Add to that a float short just shy of 30 percent and it appears as though investors might have reason to consider stopping this game with the retailer.
Liz Clairborne (LIZ)
Clothing maker Liz Clairborne had an excellent quarter to finish 2011, jumping sharply in mid October and posting gains of over 70 percent for the final three months of the year. However, based on the three criteria used to compile this list, the company might be peaking out. Almost 30 percent of the float are shorts and insider ownership is down to 0.12 percent after just over 20 percent of insider shares were sold over the last six months.
All data from finviz.com