Bears nipping at Ford as short interest ticks up

NEW YORK Feb 1 (Reuters) - Bearish bets in Ford Motor Co are rising again as a recent surge in the company's share price amid a still fragile economic recovery makes it attractive to short sellers.

As the only U.S. automaker of the Big Three to avoid bankruptcy, Ford (F.N) is in the midst of a restructuring plan to operate profitably in a smaller U.S. auto market. Optimism in its turnaround has boosted the stock. That makes it a target for skeptics who expect the stock to fall.

The company's dependence on an economic recovery for its efforts to pay off makes shorting the stock appealing to those who expect the economy to deteriorate.

Since September, Ford's stock price has been on a steady climb back into double-digits. The percentage of shares held short has also ticked up.

Bernie McGinn, chief investment officer at McGinn Investment Management in Alexandria, Virginia has held Ford stock since late 2006 and says the company is poised to pick up market share. He notes there are skeptics to his view.

"People don't believe the story. It's a far fetched story if you get right down to it," said McGinn. "The headwinds that Ford has are more macroeconomic than they are anything else."

Since September, the stock price has gained 46 percent and hit a year high of $12.14 in early January. The surge in the stock price alone makes it attractive for those who believe it has run too high. In afternoon trading Monday, shares were at $11.15, up 2.9 percent on the day.

Short interest was 5.6 percent as of the end of January, according to data specialist Data Explorers, compared to 3 percent at the beginning of September.

To be sure, bearish bets make up a much smaller percentage of outstanding shares than they did in 2008 when short interest climbed as high as 27 percent. This means current short interest has less of an impact on the stock price if shorts are forced to cover than they would have in the past.

Short-sellers borrow shares and then sell them in the hopes of buying them back at a cheaper price and pocketing the difference.

A squeeze occurs if the stock rises instead, forcing shorts to abandon their position and buy at the higher price.

Ford is not alone in seeing its short interest rise, with bearish bets in the overall market up over 2 percent in the first two weeks of January compared to the end of December, according to the latest data from the exchanges.

Bears ramped up bets ahead of Ford's earnings results last week, when the company reported its first full-year profit since 2005. Fourth-quarter profit beat expectations, but analysts said it was supported by volatile financing arm results. For details, see [ID:nN28204909]

"Car buying capacity has dried up quite a bit," said Todger Strunk, senior analyst at DBL Investment Management in West Palm Beach, Florida, who follows short interest.

"The nervousness there is both that the stock price has run up drastically since the March lows, and on a forward looking basis, sales might not be as robust as people have projected."

(Editing by Andrew Hay)