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Stock Strategist

Six "Cheap" Stocks to Consider Shorting

Sometimes what appears to be cheap really isn't.

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We at Morningstar are mostly known for recommending undervalued great franchises for the long haul. But the same skill sets that we use to identify these situations can also be used to make money on the opposite side of the table: finding stocks to short.

"Shorting"--where one borrows stock for immediate sale, hoping for the price to decline so one can buy it back more cheaply--can be a dirty word on Wall Street, evoking images of insidious hedge funds flaying a buck off the backs of honest shareholders. Open any financial publication and one may find mentions of "bear raids," "naked shorting," or "deteriorating confidence," usually cast in a negative light. Although some of these sentiments have a lot of merit, shorting is a vital component of our capital markets, and its prudent use can allow investors to control risk and to enhance returns.

Michael Tian does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.