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Short-sellers are stepping up their attack on these shares this month

Short-sellers have been increasingly active since the October market meltdown that sent the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index tumbling by over 8%.

These bearish traders borrow stock they don’t own to sell on-market in the hope of buying it back at a lower price later to profit from the difference.

Short-sellers tend to be more sophisticated than the average retail investor and it pays to know what they are doing as short-selling can have a marked impact on our share market.

This group has been stepping up their attack on ASX stocks as the market started to tank in October with over 8% more shares being short sold compared to the start of October, according to the latest data from ASIC which is always a week behind.

The stocks that are being increasingly targeted by short-sellers may surprise you. These aren’t necessarily the most shorted stocks on the ASX but these are shares that have seen the biggest jump in short-selling interest.

The company that has seen the greatest increase in its shares falling into the hands of short-sellers in the two weeks to November 15 is skin and hair products group BWX Ltd (ASX: BWX).

The amount of shares being shorted increased by a whopping 1.4 percentage points to 12.3%.

The BWX share price had crashed late last month following its profit warning that management blamed on the failed takeover attempt by its previous managers.

Fighting off the takeover had distracted BWX and that means shareholders shouldn’t expect any earnings growth in FY19.

The company with the second biggest increase in short-interest is mining giant Rio Tinto Limited (ASX: RIO) with the number of its shares being shorted rising 1.3 percentage points to 3.6%.

Short-sellers may be upping their bearish bets on Rio Tinto’s share price in the belief that investors will be rotating out of the stock and into BHP Billiton Limited (ASX: BHP) as the former completed its off-market share buyback and BHP begins the next phase of its capital return.

Third on the list is oil and gas stock Beach Energy Ltd (ASX: BPT) with short-interest in the stock jumping 1.3 percentage points to 2.9%.

Shorting the Beach Energy share price is seen as a good way to profit from the oil price crash as the company’s earnings are more leveraged to changes in the price of the commodity.

But shorting Beach Energy isn’t without its risks. The stock is seen by some as a takeover target by its largest shareholder Seven Group Holdings Ltd (ASX: SVW).

Shorting Beach Energy is akin to betting against Seven Group’s chairman Kerry Stokes and it takes a brave man to bet against Stokes.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and Seven Group Holdings Limited. 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.

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