As a retail investors sometimes it’s worth checking on what shares are being heavily bet against by hedge funds or ‘professional’ traders with the ability to short sell stock.
Short sellers borrow stock from the asset servicing (custody services, etc) and prime brokerage sides of investment banks to sell on market in the hope of buying it back cheaper in the future and pocket the difference in profit.
In other words they strongly expect the stock price to fall, as if it doesn’t they’re on the hook for the prime brokers’ lending fees plus the loss on the upside price.
Of course short sellers can be embarrassingly wrong though as we recently saw when shares in the heavily shorted Nanosonics Ltd (ASX: NAN) rocketed 35% higher after it posted a stronger-than-expected profit report.
Still, let’s take a look at five shares still being heavily bet against. All stats correct as at August 28, 2019.
AMP Limited (ASX: AMP) has 7.7 per cent of its scrip shorted as traders bet against its restructure plans and mission to revive the reputation of its financial advice business after the Royal Commission caning.
Bellamy’s Australia Ltd (ASX: BAL) has a whopping 15.7 per cent of its outstanding scrip shorted to suggest some hedge funds are confident the baby formula maker’s shares are going lower than today’s price of $8.16. Bellamy’s is still awaiting full regulatory approval for its product under proposed new Chinese state government rules. This may be encouraging the short sellers.
BWX Limited (ASX: BWX) shares have rocketed after its CEO provided strong guidance for the Sukin manufacturer to deliver 20%-25% revenue and 25%-35% EBITDA growth in FY2020. This after an FY 2019 of plunging earnings and rising debt, it seems some shorts are unconvinced by the guidance, even if they might be underwater on their bets for now.
Galaxy Resources Limited (ASX: GXY) is the Argentina and WA-based lithium miner that has a high 16.7 per cent of its scrip shorted. The naysayers are probably expecting lithium prices to keep falling as more production comes online, despite forecasts for rising demand for a commodity that is a key electric battery ingredient.
Hub24 Ltd (ASX: HUB) has 11.8 per cent of its scrip shorted as hedgies bet the financial platform provider for retail investors may be hit by strong competition among other potential problems. Hub24 operates in a competitive space with rivals including Netwealth Group Ltd (ASX: NWT) and Praemium Ltd (ASX: PPS) fighting for market share.
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Tom Richardson has no position in any of the stocks mentioned.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Hub24 Ltd. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended Bellamy's Australia and Hub24 Ltd. 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.