The market is exiting FY18 on a high note as positive offshore leads have lifted the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in early trade, but there are some stocks that are under pressure as short-sellers are increasing their bearish bets on these companies. The latest ASIC data on short positions, which is always a week behind, has put the spotlight on poultry company Inghams Group Ltd (ASX: ING) as the amount of its shares that are short-sold have recorded the biggest increase of any other ASX stock over a one-month period. Short-sellers are investors who borrow stock to sell on-market in…
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The market is exiting FY18 on a high note as positive offshore leads have lifted the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in early trade, but there are some stocks that are under pressure as short-sellers are increasing their bearish bets on these companies.
The latest ASIC data on short positions, which is always a week behind, has put the spotlight on poultry company Inghams Group Ltd (ASX: ING) as the amount of its shares that are short-sold have recorded the biggest increase of any other ASX stock over a one-month period.
Short-sellers are investors who borrow stock to sell on-market in the hope of buying it back at a lower price later to profit from the difference.
The amount of Inghams’ shares out on loan surged by 3 percentage points to 9.9% in the month to June 22 as short-sellers have grow increasingly confident that the stock has further to fall, after the unexpected resignation of its chief executive officer earlier this month.
You could say Inghams is now a headless chicken as it undertakes a major restructure with no CEO at the helm.
I suspect short-interest has not waned over the past week and that means the stock will likely underperform going into the new financial year.
I would avoid trying to pick the bottom of this stock although I won’t be surprised if a potential suitor is running the numbers on the company for a potential bid if the stock continues to weaken.
Another stock that has seen a big surge in short-interest is Metcash Limited (ASX: MTS). The amount of its shares out on loan to bearish traders surged 2 percentage points to 10% over the period and the trade has been a particularly lucrative for short-sellers given that its share price has crashed 15% over the past month.
The trigger was likely news that it had lost a major customer in South Australia and was taking a $352 million impairment charge in late May/early June.
The grocery distributor and hardware retailer’s full year results that were released on Monday will likely add to the bearish sentiment towards the stock.
I would avoid Metcash too as the stock is unlikely to stage a turnaround in the near-term.
On the flipside, stocks under the takeover spotlight like outdoor advertising company APN Outdoor Group Ltd (ASX: APO) and skin care products group BWX Ltd (ASX: BWX). Both saw the biggest decrease in short-interest over the month to last week.
That’s to be expected but it’s noteworthy that embattled theme park operator Ardent Leisure Group (ASX: AAD) is the third most improved stock on this measure.
Its total shares on loan have fallen by 2.3 percentage points to 6.7% as the government enquiry into the deaths at its Dreamworld park on the Gold Coast kicks off.
This could mean that the stock may have found a bottom and could be poised for further gains in FY19 – unless the enquiry uncovers something more sinister and unexpected.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX 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 Scott Phillips.