Be forewarned: This article isn't for the faint of heart. I'm going to be introducing three stocks that could make huge moves during this earnings season.
Whether those moves are up or down is hard to tell. The reason these stocks are liable to make such moves is that they are heavily shorted. Major news announcements usually have an exaggerated effect on heavily shorted stocks, and earnings announcements definitely qualify as a "major announcement."
I've scoured the markets for the most popular shorted stocks four times before. Over this time frame, the average stock that I've covered has moved 15% on news of its earnings.
Here are this quarter's three stocks to look out for:
| ExOne (NASDAQ: XONE ) | 35% | N/A | $9.3 M | ($0.07) |
| SodaStream (NASDAQ: SODA ) | 35% | Aug. 5 | $130 M | $0.56 |
| Dendreon (NASDAQ: DNDN ) | 34% | July 29 | $75.6 M | $$0.42) |
Sources: Finviz.com, E*Trade
ExOne
Source: ExOne.
If there's one sector that's simply been on fire the past two years, it's 3-D printing. The technology has the potential to one day change the way we go about buying and making the things we use in everyday life.
Industry leaders Stratasys (NASDAQ: SSYS ) and 3D Systems (NYSE: DDD ) have seen their shares go stratospheric since January 2012.
SSYS Total Return Price data by YCharts
It really shouldn't be that much of a surprise, then, that ExOne -- which just became public this February -- is already up more than 150%!
That alone has lots of shorts betting against the company. But that's not all that ExOne bears are looking at. In the two quarters the company has announced earnings as a public company, it has brought in just over $20 million -- yet it is valued at $900 million. By traditional metrics, that's an insanely high valuation.
Yet, there's more to the story. Within the 3-D printing industry, Stratasys and 3D Systems have typically split up the market, with the former focusing on industrial clients, and the latter zeroing in on consumers. That changed recently, when Stratasys acquired consumer-facing Makerbot. But where, then, does ExOne fit?
Whereas 3-D Systems and Stratasys primarily offer printed products that can either function as prototypes or functional plastic objects, ExOne's machines can print (read: manufacture) objects with steel, ceramics, sand, glass, and bronze -- and the company is working on the capability to print with tungsten carbide, titanium, aluminum, and magnesium as well.
It will be interesting to see what ExOne has to report when it announces earnings.
SodaStream
This company -- which makes at-home carbonators and syrups -- and its stock have been shorted before, and the shorts have been burned. When SodaStream announced earnings for the first quarter of 2013, it showed that revenue has grown by 36% per year for the past two years, while earnings have jumped 22% per year over the same time frame.
Some people think that the at-home carbonators are just a passing fad, and will never catch on over time -- but they fail to realize that the machines have been popular in Europe for decades. Others are worried that the company will follow the path of Green Mountain Coffee Roasters -- whose stock suffered an implosion when patents on the Keruig coffee makers expired. But the two companies are fundamentally different.
Adding intrigue to the narrative is that there have been whispers that SodaStream is now a buyout candidate. Whether that proves to be true, keep an eye out for whether SodaStream continues to penetrate the U.S. market as it has increased advertising here.
Dendreon
Finally we have Dendreon, a biotechnology company focused on creating drugs to defeat various forms of cancer. There's no doubt that any company that comes up with an effective treatment for cancer stands to make billions -- but there's a difference between potential and reality.
Provenge, the company's only FDA approved drug -- which treats prostate cancer -- has had terribly disappointing sales. Part of that may have to do with the $93,000-per-year price tag attached to the drug (yes, you read that number right).
There could be good news in store for the company, as European regulators are have endorsed the use of Provenge in the continent. But there's no way to tell if the drug will experience a fate in Europe similar to that which it has experienced stateside. Either, don't expect to see Europe move the needle until later earnings statements.
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