Looking for a couple good short positions to help hedge against this up-and-down market? Look no further than Brad Lamensdorf, co-manager of the Ranger Equity Bear ETF, an actively managed short-only fund.
Brad stopped by Yahoo Finance with three picks he thinks are headed lower right here, right now.
United Natural Foods, Inc (UNFI)
The company touts itself as the “North America’s leading distributor of natural, organic and specialty products.” Leader or not Lamensdorf is short. “The entire industry is having trouble,” he says. “Everyone knows Whole Foods (WFM) well. They are feeding right into that entire dynamic. There’s just a lot of competition generating free cash flow. We just think they’re in trouble."
United Natural Foods’ stock has been knocked around to the tune of 20% so far this year but Lamensdorf says they have further to fall given the fact that they are trading at “23 times earnings. We think food companies should trade at 12-15 times.”
The Texas-based specialty retailer focuses on electronics and appliances and are trying to expand their reach. Lamensdorf says they may accomplish that goal, but not in a financially healthy way. “The biggest problem is 50% of their entire customer base is self-funded by the company. They have their own credit facility that they’re lending out.” He notes that Conn’s says the average borrower is carrying a credit score of 605, a number Lamensdorf thinks is, in reality, a bit lower. The expansion then is being funded by subprime lending and that’s enough to make Lamensdorf’s ‘short’ list.
Cree is in the business of manufacturing LED lighting products. They make everything from consumer focused bulbs to industrial lighting and the components to make the glow. Right now Lamensdorf notes their biggest customer is Home Depot (HD). The problem is increased competition. “General Electric (GE), Sylvania, Phillips - they’re all coming in,” he says. More competition on the manufacturing side means more choices for the consumer. While Cree may be available at Home Depot, other LED products are up for sale just about everywhere else. Even your neighborhood CVS (CVS) Lamensdorf says.
One of many caveats when considering a short position is the possibility that these companies would be bought. Look at all the Trulia (TRLA) shorts that got taken out behind the woodshed this morning when Zillow (Z) snapped up their competitor for $3.5 billion (Trulia is up more than 55% in the last three trading days).
Lamensdorf says rest easy, United Natural Foods, Conn’s and Creed are not in a position to be taken out.