Be forewarned... this article isn't for the faint of heart. I'm going to be introducing five 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 because 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.
Best Valued Stocks To Invest In 2015
Here are this quarter's five stocks from the S&P 500 to look out for:
| Cliffs Natural Resources (NYSE: CLF ) | 32% | July 26 | $1.4 B | $0.69 |
| US Steel (NYSE: X ) | 31% | July 30 | $4.6 B | $(0.77) |
| Pitney Bowes (NYSE: PBI ) | 28% | July 30 | $1.2 B | $0.44 |
| Frontier Comm. (NASDAQ: FTR ) | 24% | Aug. 7 | $1.2 B | $0.06 |
| First Solar (NASDAQ: FSLR ) | 18% | July 29 | $734 M | $0.55 |
Source: Finviz.com, E*Trade
Cliffs Natural Resources
Cliffs is a company with a two-pronged business: mining for iron ore, and metallurgical coal. As if negative earnings and a lot of investors betting against it wasn't enough, the company also recently disclosed that CEO Joseph Carrabba would be retiring -- although the market actually liked that announcement.
The core of the problem for Cliffs is the fact that iron-ore prices have dipped, and it was forced to write down $1 billion for its Consolidated Thompson acquisition. These two factors combined made the company slash its dividend and raise equity capital. This month's earnings should help investors see if there's any turnaround in sight for the company.
U.S. Steel
America's largest steel producer has seen better days. Over the past 12 months, the company has just barely been profitable -- pulling in $0.07 per share. And 2013, as a whole, is expected to be unprofitable for the company.
Like Cliffs, U.S. Steel has had to contend with low commodity prices, as well as slower growth and credit problems in China -- one of the major buyers of steel. But the company is also in a highly cyclical industry and, by 2016, analysts actually see U.S. Steel earning $4.20 per share -- making today's price look cheap for long-term investors.
Pitney Bowes
It's hard to argue that a lot of people might bet against a company that has historically relied on the United States Postal System -- and paper mail delivery, in general, for the bulk of its revenue. Such is the case with Pitney Bowes, which sells machinery and software to help streamline communications via mail.
Revenues have been consistently falling for years, and the company announced earlier this year that its dividend would be cut by 50%. Some might say, "Well, the stock is so low it has to be a buy, right?" To which I would say that any stock can go to zero -- and when it does, you lose everything.
Frontier Communications
Frontier is a company in the process of trying to make itself over. Traditionally, the company had relied on revenue from landlines in rural areas of the United States. But, as more and more people cut their landlines off in favor of cell or smart phones, that business is disappearing.
In its place, Frontier is trying to package telephony along with Internet service to a growing number of business clients. If it is able to solidify a customer base among these businesses, the company's 10% dividend yield could be safe, and the stock a good investment. But if things don't work out during this transition, expect big drops.
First Solar
This stock seems to make my list of possible big movers every quarter. First Solar designs and manufactures solar panels to generate clean energy. The company has fallen on hard times over the past few years, as competition from China drove prices down for solar panels significantly.
But recent statements from Dr. Ernest Moniz -- the Department of Energy Secretary -- have offered some hope. He said that the solar industry could come into its own sooner than expected, and First Solar also said it had to stop taking orders until late 2013 because its production facilities can't meet demand.
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