Some professional investors not only bet on shares going up, but also going down as part of an ‘absolute return’ or ‘long short’ strategy in an attempt to even make money when some share prices are falling.
Short sellers borrow stock to sell and expect it to fall before buying it back and pocketing the price difference as a profit.
As professional investors short sellers also tend to do more research than your average mum 0r dad investor and therefore it might be worth paying attention to stocks they’re betting against. However, remember short sellers can be wrong as well as right so investors should not read too much into their bets.
Below is a summary of 10 heavily shorted shares on the ASX. All stats from ASIC as at 31 October 2018.
Vocus Group Ltd (ASX: VOC) has 5.2% of its shares shorted as the group still battles a debt load above $1 billion and the profit margin erosion of the national broadband network. However, short interest in the shares has been declining.
Syrah Resources Ltd (ASX: SYR) has 15.3% of its shares shorted, although the Mozambique-based graphite miner today announced a sales agreement with a Chinese company.
Speedcast International Ltd (ASX: SDA) has 9.2% of its shares shorted as traders bet the satellite communications group won’t justify its big valuation.
SEEK Limited (ASX: SEK) has 6.1% of its shares shorted as traders bet that it’s overvalued relative to its real profit growth. Backing out investment costs SEEK’s profit growth is reasonable, but on a real world basis it’s only marginally positive.
Platinum Asset Management Limited (ASX: PTM) has 5.3% of its shares shorted as investors bet weak FUM flows will hurt the international equities manager.
Perpetual Limited (ASX: PPT) has 4.9% of its shares shorted as investors also bet weak FUM flows will hurt the group’s profits.
Orocobre Limited (ASX: ORE) has 16.7% of its shares shorted as investors bet the Argentina-based lithium miner won’t produce the profits to justify its valuation.
Nextdc Ltd (ASX: NXT) has 10% of its shares shorted as investors bet the data centre operator is overvalued given its extensive upcoming capital expenditure commitments.
Myer Holdings Ltd (ASX: MYR) has 11.1% of its shares shorted as investors bet online and overseas competition will continue to hurt the department store operator.
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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Platinum Investment Management Limited. The Motley Fool Australia has recommended SEEK Limited and Vocus Communications 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.