It is dangerous to jump to conclusions about why stocks are being shorted, as investors have many reasons for doing so and will be betting on different time horizons – some very short-term.
However, it is interesting that a number of the most-shorted stocks have recently been on a good run.
Weir Group
Glasgow-based Weir Group manufactures valves and other parts for use in the mining, oil and gas, and energy industries.
Its valves are used in shale gas production, which has been a source of growth for the company in recent years.
According to Bloomberg data, 13.3 per cent of the company’s shares are lent out to short sellers. Shares are trading on 14.7 times earnings.
This week the company announced profits were below expectations in the second quarter, thanks to project delivery delays in its minerals business and a slower-than-anticipated recovery in oil and gas markets.
The disappointing news meant shares slumped dramatically on Monday, although they have retraced more than half of their losses since.
Shares had been ahead of the FTSE in the year-to-date until the disappointing update and are now just about level.
Performance of stock vs index in 2013
Source: FE Analytics
The stock has returned 19.6 per cent to the index’s 19.64 per cent, according to data from FE Analytics.
Only seven funds count it as a top-10 holding, although this includes FE Alpha Manager Nigel Thomas’s AXA Framlington UK Select Opportunities, which has 3.2 per cent in Weir Group.
FE Alpha Manager Margaret Lawson’s SVM UK Growth is another top-performing fund to have a decent bet on the stock – it has 2.5 per cent invested in it.
Admiral Group
Weir Group is by far the most-shorted stock, with the next company, Admiral Group, having just 5.4 per cent of its shares sold to short sellers, according to Bloomberg.
Admiral owns confused.com as well as businesses in France, Spain and Italy. Earlier this year it launched comparenow.com, a car insurance site in the mould of confused.com, but based in America.
Insurers were hit this week after peer RSA said weather-related losses would be worse than expected.
Performance of stocks vs index over 1 month
Source: FE Analytics
Admiral Group is due to present an interim management statement on 11 November.
The tiny SF Metropolis Value fund is the only fund to hold Admiral in its top-10, according to FE Analytics data.
Aggreko
Glasgow-based Aggreko is a temporary power supplier whose shares have been under pressure this year. Just under 5.3 per cent of its shares are out with short sellers.
The stock has slipped 9.32 per cent in 2013, as the FTSE All Share has risen 19.64 per cent.
Performance of stock vs index in 2013
Source: FE Analytics
The company published generally positive results on 28 October, which were well received by the market but not by some professionals.
Broker Cantor Fitzgerald cut its buy-rating to hold earlier this week, citing weak trading concerns in the company’s power division, which accounts for 40 per cent of its earnings. Projects in Japan, related to the tsunami, and Afghanistan are coming to an end.
The company said its product pipeline remains strong but the rate of conversion into revenues remained slow.
Manek Growth is the only fund to hold the stock in its top 10.
TUI Travel
TUI Travel has had an excellent year, along with rival Thomas Cook and many companies in the leisure industry such as easyJet. Shares are up 41.17 per cent in 2013.
Performance of stock vs index in 2013
Source: FE Analytics
A profits warning from Ryanair on Monday sent shares down, although they have since recovered to where they were before the announcement. Positive passenger figures from easyJet yesterday may have helped.
Nevertheless, 3.7 per cent of the company’s shares are being sold short.
The travel industry is cyclical, but recent figures for Tui have been strong and the company has increased revenues, earnings per share and the dividend each year since 2010.
Three funds hold Tui Travel in their top-10: Artemis Capital, Smith & Williamson Enterprise fund and Smith & Williamson UK Equity Growth.
WM Morrison
Morrisons is the fifth most-shorted stock on the FTSE, according to Bloomberg figures, and Sainsbury's the sixth. Whereas 3.6 per cent of the former’s shares are out with short sellers, the number is 3 per cent for the latter’s.
Morrisons has been suffering relative to its competitors thanks to its low levels of online sales and low numbers of smaller, convenience shops which are the fastest areas of growth in the sector.
The company has been attempting to catch up, expanding both areas of its business.
This morning it published a 2.4 per cent fall in like-for-like sales, pushing shares down and leaving he short-sellers with gains.
The major supermarkets, which tend to be defensive stocks, have underperformed the FTSE year-to-date, although Sainsbury’s has been ahead at certain points.
Morrisons has returned just 11.38 per cent against the 12.56 per cent of Tesco and 18.58 per cent of Sainsbury's.
Schroders is a big fan of the stock, and it is a top-10 holding in Schroder Recovery, Schroder Income, Income Maximiser and Schroder Specialist Value UK Equity. Seven other funds hold it in their top 10.
