5 heavily shorted blue-chip shares traders are betting against

Rio Tinto Limited (ASX: RIO) is among some blue-chip favourites being short sold in increasing amounts.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Like it or not short selling shares is a trading strategy here to stay and if nothing else it can give share market investors a view on what businesses some professional investors expect to fall in value.

While short sellers are often wrong and end up wearing losses sometimes their bets are correct.

Generally the higher the percentage of a stock sold short the more bearish sentiment around it. Anything more than 5% sold short is a reasonable amount, with 10% or more perhaps a warning sign that a business is sailing into trouble.

But remember the higher the short position the stronger the surge higher if it turns out short sellers are incorrect in their assumptions.

So let's take a look at five well known businesses being shorted today. All data accurate as at April 3 2019.

Crown Resorts Limited (ASX: CWN) has only 1.6% of its scrip shorted, but that's still around $130 million worth of shares and given it jumped 20% today on the back of a takeover bid we can see why short selling is a high stakes game.

Perpetual Limited (ASX: PPT) has 9.3% of its shares shorted, which is a lot for a fund manager that shouldn't be too hard to value. However, traders are probably betting the stock is set to fall after a recent price surge reportedly triggered by an index tracking fund buying into the business.

NextDc Ltd (ASX: NXT) has 12.8% of its shares shorted as speculators bet it may be overvalued given its ongoing capital expenditure commitments and high price-to-earnings multiple.

Rio Tinto Limited (ASX: RIO) had 5.4% of its shares shorted presumably because traders feel it has overshot to the upside after a strong run. Betting against stocks printing new highs is a dangerous game and the shorters will need nerves of steel or deep pockets for this one.

BHP Group Ltd (ASX: BHP) has 3.7% of its shares shorted perhaps because speculators feel commodity prices are ripe for a fall. However, this seems a dangerous game to play with BHP hitting a new 52-week high today and it being a particular favourite of the Australian investing community for now.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of and has recommended Crown Resorts 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.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »