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"Shorting" drives up Qwest stock
By Beth Potter, Staff Writer
Denver Post
Monday, June 12, 2006

Three telecommunications stocks, including Qwest in Denver, are among the top five stocks being "shorted" by investors across the country.

Qwest's short interest position from April 13 to May 15 rose from 58 million to close to 61 million shares, the most recent period for which statistics are available.

The last time it was so high was spring 2005, when the company made a bid for rival MCI.  At that time, its short interest was about 106.7 million shares.

Short sellers borrow shares of a stock, betting that the price will drop.  If they're correct, the investors make money by repaying the borrowed shares with shares purchased at the lower price.

If they're wrong, the short sellers are "squeezed" into buying up shares to repay the loans, thereby driving the stock price up.

Dylan Wetherill, president of ShortSqueeze.com, which gathers data on short positions, said one reason for the recent uptick in Qwest's stock is "heavy levels of short interest."

"There's a lot of power in this stock," Wetherill said.  "When you get this concentration of short interest, it can move the fundamentals."

Qwest's stock has more than doubled in the past year from a low of $3.45 to a recent high of $7.90.  It closed Friday at $7.67.  It once traded at $60 before dropping to less than $2 in 2002 amid an accounting fraud scandal that forced the company to restate $2.5 billion in earnings.

But Denver-based Qwest in the past year also has pared its debt, improved its cash flow and reported positive earnings for the first time since 2002 in its first quarter this year.

Analysts said other factors also may be contributing to Qwest's stock run, from its recent price promotion for a TV, Internet and phone package, to a mention on the "Mad Money" TV show.

Qwest spokesman Bob Toevs said the company does not comment on its stock price.

Short-selling momentum could drive Qwest's stock price to $9 in the next three to six months, said John Claxton, vice president of investments in Dain Rauscher's Denver office.  Claxton said he is not recommending investors buy Qwest stock at this time.

Lucent Technologies and AT&T are the other two telecom companies on the top short-positions list among publicly traded companies, according to a May 20 New York Stock Exchange report.

That's due in part to industry consolidation such as AT&T's buyout offer for BellSouth and industry volatility, Dave Barden, a Bank of America telecommunications analyst, said in an industry report.

The list of top five shorts in order is: Lucent, Ford, General Motors, AT&T and Qwest.

Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.

http://www.denverpost.com/business/ci_3925834