The Shortlist of the Shortlisted “Stocks to Short for 2010?: What We See as the Most Profitable Bear Postions for 2010

Here is a the final list of companies culled from a group of nearly
1,800 that we feel have the most profit potential for the year going
forward.

This is the culmination of four blog posts:

1. Non-Financial
   Companies to Short in 2010: methodology and short listing results;
2. BoomBustBlog
   Bankruptcy Search: Focus on British Petroleum and Collateral Damage:
   an objective look at the prospects of BP’s potential insolvency;
3. The
   BoomBustBlog Pan-European Sovereign Debt Crisis Bankruptcy Search: 
   a review the financial and bank holding companies whose economic and
   financial outlook do not support their current valuations;
4. and On Shorting
   Stocks, Double Dips and the UAL/CAL Merger: a drill down of
   suspect airlines stocks.

Note: The embedded spreadsheets contained in the posts above
should be used to access the extensive fundamental data used in
calculating the results below. The source of this post is a professional/institutional level document, but annual
Retail subscribers and any subscribers who have been with me for a year
ore more can email customer support for a copy as we show our
gratitude for your continued patronage. Professional and Institutional
subscribers should download this document in its entirety here: Financial and Non-Financial Short Scan Review
& Analysis – Pro (392.88 kB 2010-06-28 05:33:44)

After two separate and rigorous short exercises, one each for
financial and non-financial companies, we have narrowed down the list of
potential candidates from nearly 1,800 companies to just 10 (with 13
runner-ups) – all of which we are confident are materially overvalued
given their current and prospective financial condition and economic 
outlooks. What is of particular interest is the fact that a full 50% of
these companies landed on our computer screens as finalist in 2008,
before the great market melt-up of 2009. They were overvalued and in bad
shape during the lower prices of the turbulent times, hence they are
significantly more so after seeing their share prices ride the wave of
irrational, recession double-dipping, “recovery” exuberance. We have
even released forensic analysis of 4 of these 10 companies over the last
two years, and all of the banks in the list were also members of the
original Doo
Doo 32 of May 23, 2008. Members of this list provided significant
profits for bears and short sellers as their prices gyrated and
collapsed and the market began to realize the precarious situation that
they were in. Now that low volume melt-ups are [starting to] giving way
to realistic fundamentals, one can expect more of the same. The more
things change, the more they stay the same. We plan to refresh the
analysis of the repeat offenders, and offer fresh analysis of those who
are new to the list.

The two separate short scans that we have conducted were for the
non-financial sector and the financial/banking sector resulted in a
short-list of 23 companies, with 10 of those companies targeted for full
blown forensic analysis, time and resources permitting.

Below is the outline of the methodology used to produce them as well
as a select excerpts from one of our previous reports on a particularly
egregious “valuation” repeat offender that has proved profitable in the
past whose macro outlook tied to the housing sector is a gloomy as ever –
despite a near 100% pop in its share price. This the obligatory
“freebie” that I toss in to entice non-subscribers to take the plunge.
This particular “freebie” happens to be quite actionable, at least in my
humble opinion.

One of the members of the final shortlist, covered in BoomBustBlog
quite profitably in early 2009, is USG. It is directly tied into the
housing market through starts and renovations, as well as the commercial
real estate market through new construction. Anyone who has followed me
for any significant amount of time knows that I have declared all of
those markets to be practically dead since 2007 and to remain so for the
foreseeable future. Reference As
I Made Very Clear In March, US Housing Has a Way to Fall:

The government incentives are just market
interference and pricing distortions, prolonging the pain: It’s
Official: The US Housing Downturn Has Resumed in Earnest

Let’s take a look at some charts
sourced from the upcoming BoomBustBlog subscriber “A
Fundamental Investor’s Peek into the Alt-A and Subprime Market”should
be released withing 24 hours or so. This release will include all of
the raw data necessary for users to run their own calculation and draw
their own conclusions. update, which

Click to enlarge

As for the commercial real estate market (a topic wherein I have a
particularly rigorous update coming up), my opinions can be found in
depth here: Commercial
Real Estate is Pretty Much Doing What We Expected It To Do, Returning
to Reality:

Moody’s has released data that shows CRE
has fallen for a second straight month. Thus far, things are rolling
along exactly as we anticipated in our 
CRE 2010 Overview (2.85 MB 2009-12-16 07:52:36), available for
free download.

So, where does this leave USG? Well, as elaborated back in 2008…

and on page two of said analysis…

And page 3…

Much of the scenarios that contributed to the short thesis then are
still present now, save the fact that the US government has practically
shot its wad in an attempt to artificially support the housing market
and the municipalities in the US and sovereign states abroad have taken
on so much debt to participate in this business cycle “rejiggering” that
they will be literally crowding out the private sector in the near
future and putting upward pressures on interest rates at a time when
many entities are still quite fragile, the US and much of (austerity
suppressed) Europe enters a double dip recession (see the Pan-European Sovereign Debt Crisis for our early
and accurate calls on that malaise), and the housing
market resumes its downward spiral…

Lest we forget, we also finalized our financial short scans as well,
and have picked 3 companies out of roughly 180. All three are members of
the original Doo
Doo 32 of May 23, 2008,  which goes to show that the good times
from 2008 are probably due to return sometime soon.

Again, Professional and Institutional Subscribers can download the
source document which contains all 23 of the shortlisted, short list
companies in order of preference, including what we consider the 10
finalists, here Financial and Non-Financial Short Scan Review
& Analysis – Pro (392.88 kB 2010-06-28 05:33:44). Interested parties can subscribe to our services here.

Subscribers are free to use the ample fundamental data in the blog
posts inline spreadsheets (see sidebar above) to retrace our logic or
perform their own analysis to come to an alternate conclusion. Annual
Retail subscribers and any subscribers who have been with me for a year
ore more can email customer support for a copy as we show our
gratitude for you continued patronage.

Cheers,

Reggie Middleton

BoomBustBlog

Anyone interesting subscribing to our

Comments

[mephisto]

Having done some extensive analysis of 500 names, I have come up with my own shortlist. It contains 500 names. As a bonus I have discovered ESU0, a subscription-free way to short them. Sorry Reggie.