My Best Investment Ideas for 2016: Part 3

In my previous articles, I shared four ideas with investors. Two of those ideas were long recommendations whereas two were short. In this article, I will be sharing three more short ideas. I have a bearish stance on the market as of now, which is why I think investors should have a larger short position in their portfolio. You can find out my top two short ideas by reading the first two parts of this article series. Moving on, let’s take a look at three more stock ideas for 2016.

Shake Shack (SHAK)

Shake Shack is a good company trading at a ridiculous valuation.
I had already recommended shorting Shake Shack a few weeks ago and my call has returned over 10% profit. Although shares of Shake Shack have plunged considerably since then, I think the stock has more downside, which is why investors should add a short position to their portfolios.

Shake Shack has less than 100 outlets right now, yet it is trading at a ridiculous valuation.  The company’s P/S ratio stands at almost 8. Moreover, in order to propel growth, the company is spending money at a rapid pace. For the company to grow into its current valuation, it will have to maintain double digit revenue growth for roughly three years. While it may be possible, but that doesn’t justify Shake Shack’s present valuation. Moreover, insiders have been dumping the stock in the open market at a rapid pace, and this makes the short case even more compelling.

Ferrari (RACE)

Ferrari has a great IPO but its success proved to be short lived as the stock has already given up a lot of the gains. While Ferrari has gone down considerably, I think it still has more room to fall and the stock is still a compelling short that investors should add to their portfolio.

The stock is currently overvalued as the company’s management has convicted investors to pay premium for a luxury brand. In the long-term, the company’s “luxury” bubble will burst as its present valuation is unjustifiable. Hence, Ferrari is a short position that investors must have in their portfolio going further into 2016.

Amplify Brands (BETR)

Amplify Brands is another one of those companies that go public just to exploit regular investors while letting the underwriters and the insiders make money. The company went public recently and while its IPO was botched, I think it has more downside potential. TA Associates, the Private Equity company that backed Amplify’s IPO, owns 58% of the company and the firm has been selling the stock in the open market. Thereby, I think Amplify Brands is another stock that investors should short in 2016.

Conclusion

Shorting stocks can let investors benefit from the ongoing market correction. Given the present volatility in the market, I think investors should add these three short positions to their portfolios as they possess great downside potential.
Published on Jan 8, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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