I like to start each week with a look at ASIC’s short position report in order to find out which shares are being targeted by short sellers. For those unfamiliar with short selling, a short seller will borrow shares to sell on market with the aim of buying them back at a lower price in the future and pocketing the difference. As it is a high risk strategy with the potential for limitless losses, short sellers will often only take a short position if they believe they have a high probability of success. For this reason I believe it is…
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I like to start each week with a look at ASIC’s short position report in order to find out which shares are being targeted by short sellers.
For those unfamiliar with short selling, a short seller will borrow shares to sell on market with the aim of buying them back at a lower price in the future and pocketing the difference.
As it is a high risk strategy with the potential for limitless losses, short sellers will often only take a short position if they believe they have a high probability of success. For this reason I believe it is prudent for investors to keep a close eye on short interest levels.
At the moment short sellers are betting on the 10 shares below taking a tumble in the coming months:
- Syrah Resources Ltd (ASX: SYR) has short interest of 21.4%, making it the most shorted ASX share once again. Short interest has increased since management warned that the prices it is commanding may not be as high as some expect.
- Independence Group NL (ASX: IGO) has short interest of 16.8%. Although Independence had a reasonably solid December quarter, short sellers appear to think that it is still overvalued.
- Domino’s Pizza Enterprises Ltd. (ASX: DMP) has short interest of 16.6%, up sharply since last week. Last week the UK version of Domino’s delivered an impressive result which I think short sellers should take note of.
- JB Hi-Fi Limited (ASX: JBH) has seen its short interest fall to 14.1%. Short sellers continue to close positions after Morgan Stanley added the retailer’s shares to its model portfolio and slapped an overweight rating on them.
- Healthscope Ltd (ASX: HSO) has short interest of 13.8%. Considering the tough trading conditions it faces and its weak outlook, short sellers may believe that the private hospital operator’s shares are overvalued.
- Retail Food Group Limited (ASX: RFG) has short interest of 13.2%. It appears as though short sellers don’t believe that the food and beverage company is over the worst of it just yet.
- HT&E Ltd (ASX: HT1) has short interest of 10.7%. The outdoor advertising company has had a tough time of late. In the last few months it has lost a major contract and been slapped with a sizeable tax bill from the ATO after being issued amended assessments.
- Flight Centre Travel Group Ltd (ASX: FLT) has 9.9% of its shares held short. Despite the high level of short interest, the travel agent’s shares have been flying higher recently following a broker upgrade.
- Greencross Limited (ASX: GXL) has short interest of 9.8%. The integrated pet care company has suddenly come on the radar of short sellers ahead of earnings season. They may be predicting a weaker-than-expected half-year result.
- Mayne Pharma Group Ltd (ASX: MYX) is back in the top ten with short interest of 9.5%. The pharmaceutical company’s shares have come under pressure recently due to price pressures in the lucrative US market.
I would suggest investors avoid shares like Mayne Pharma for now and focus on quality shares such as these three growth shares. I expect them to have a strong earnings season.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited, Greencross Limited, and Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.