Should you chase short sellers, particularly in the energy business? That is what you have to ask yourself after a Credit Suisse report on the sector. Oil has remained above $100 a barrel most of this year, and Americans are starting to get used to the fact that $3-plus a gallon of gasoline is here to stay. With this high pricing, energy stocks have done well. In a new report from the Credit Suisse trading desk, the analysts highlighted a list of energy stocks that the institutions and sophisticated investors are shorting. It is a list you may want to review and see if you own any of the stocks being targeted.
All the variable rate, high-dividend refiners are being shorted heavily, especially by the hedge funds. While this can be an expensive short sale due to the high coverage on the distributions, it may be a very profitable angle. These refiners have to base their high payouts on current income from their operations. Should they have a poor quarter, they may have to drastically lower their payouts. This could cause a wave of selling as investors flee the stocks for more consistent dividends.