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2016 Small And Mid Cap High Conviction Shorts


My 2015 & 2014 High Conviction Shorts had an average return of -32% for 2015 and -23% for 2014.

2016 High Conviction Shorts: MobilEye (MBLY), Shake Shack (SHAK), Ferrari (RACE), Amplify Brands (BETR), and Wayfair (W).

Notable Mention 2016 Shorts include: Offshore Oil Rig Basket (RIG, DO, RDC, SDRL), For Profit Higher Education Basket (APOL, CPLA, ESI), and NAVI.

This article is a follow up to my previous articles entitled 2014 Small and Mid Cap High Conviction Shorts and 2015 Small And Mid Cap High Conviction Shorts. In this article, I will lay out my top Shorts for 2016 as well as review my picks from 2015. Most of my shorts are in the Small and Mid Cap space, but on the short side I focus on all market capitalization stocks, as the most radical overvaluation can be found at extremes in the very high capitalization stocks.

Below is a summary table of how my picks did from 2015.

Last year the stocks that I selected were Globalstar (GSAT), Zillow (Z), Healthstream (HSTM), Rice Energy (RICE), and Straight Path Communications (STRP). All 5 of the stocks that I selected in 2015 were down for the year, with a few down significantly. Globalstar continues to be in limbo with their TLPS service still hoping and waiting on the FCC to weigh in. Zillow completed the merger with Trulia, had a stock split in which they created 3 classes of shares, all while growth continued to slow as I predicted. Healthstream continued to report lower than consensus growth as they deal with the end of ICD-10 revenues. Rice Energy was hurt most of the year by very low Natural Gas Prices. Straight Path Communications was by far the best short of the year. After the stock ran up over 100% in the first 9 months of the year, it then fell 75% on two negative reports in the course of one month, one by Kerrisdale Capital and one from an anonymous source. Overall my short picks for 2015 were a great success.

Here are my top picks for 2016.

Mobileye (MBLY)

For me shorting Mobileye is a no brainer. I have invested in Auto Parts markers in the past and I understand the supply chain within the industry and the other industry players. I see no way that Mobileye can sustain its huge 25% operating margins in the competitive environment to come. The big auto parts makers including Delphi (NYSE:DLPH), Autoliv (NYSE:ATV), and Gentex (NASDAQ:GNTX) all want a piece of the Advanced Driver Assistance Systems (ADAS) market in which Mobileye is the default leader (largely because they were crowned the leader of ADAS by their Investment Bankers Goldman Sachs and Morgan Stanley). There are also competitive pressures coming from companies working on cheap LIDAR systems that will directly compete with Mobileye's mono-camera systems and could potentially replace them as LIDAR is considered technically superior to camera based systems. Some of the upstarts in the LIDAR space include a>