By Jennifer Ablan
NEW YORK (Reuters) - Selling stocks short, a tricky tactic in the best of times, looks set to be even riskier in 2007 as this favorite hedge fund play runs up against a takeover binge that threatens to send stocks soaring at the slightest hint of a deal.
"Shorting has always been hard, but never been harder," Shawn Kravetz, the president of hedge fund operator Esplanade Capital, told the Reuters Investment Outlook 2007 Summit in New York on Tuesday.
He and several other managers said that although there are "great shorts in theory," due to several companies' deteriorating or mixed business fundamentals, their stocks have been buoyed by takeover speculation -- which has been fueled by the abundance of cash built by private-equity firms.
Gap Inc. (GPS.N: Quote, Profile, Research, Stock Buzz), for example, has rallied on speculation that a leveraged buyout could take place. Shares in the casual clothing retailer have climbed amid persistent weak sales performance, posting gains of about 11 percent so far this year.
"It hasn't been a good short," Peter Siris, founder of Guerrilla Capital Management LLC, said at the Investment Summit. He continues to hold open his short position in Gap stock, nonetheless.
"Very little is sacred these days ... we will hold shorts to an even higher hurdle," added Kravetz.
Retail has been among the most targeted sectors, triggered by brutal competition and bulging corporate coffers. Buyout speculation has lingered for months around retailers such as Barnes & Noble Inc. (BKS.N: Quote, Profile, Research, Stock Buzz), Hot Topic (HOTT.O: Quote, Profile, Research, Stock Buzz) and RadioShack (RSH.N: Quote, Profile, Research, Stock Buzz), whose stocks have benefited from the LBO fervor.
Speculation has been rampant about a takeover of Dollar General Corp. DG.N, which has lagged its competitor, Family Dollar Stores (FDO.N: Quote, Profile, Research, Stock Buzz). Continued...
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