Warning: These 5 shares are being heavily bet against by short sellers

One of these companies is at a record high the other a 52-week low.

| 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

Now and then it's worth taking a look at what shares hedge funds or professional investors are betting heavily on falling over the short term of say 6 to 12 months as it may give us some insights as to companies facing problems. 

Short sellers borrow stock off prime brokers to sell on market and hopefully buy back later at a lower price to turn a profit on the difference less the fees owed to the prime brokers. 

Generally if a business has more than 10% of its outstanding scrip shorted it's fair to say it's being relatively heavily bet against and it's worth considering why some professionals are betting against it.

However, short sellers can be embarrassingly wrong as we recently saw when the heavily shorted Bellamy's Australia Ltd (ASX: BAL) jumped 44% in a day on the back of a takeover bid.

So with all this in mind let's take a look at five businesses being bet against. All stats accurate as at October 3, 2019 according to ASIC. 

AMP Limited (ASX: AMP) has 6.2% of its scrip shorted as the struggling financial services giant attempts to execute a 'turnaround strategy' that includes asset sales, redundancies and a major corporate makeover. It was struggling operationally prior to the Royal Commission and recently scrapped its dividend completely in a corporate move that usually sees plenty of shareholders sell.

JB Hi-Fi Limited (ASX: JBH) has 11.5% of its scrip shorted despite it hitting a record high of $35.43 per share yesterday to mean every single short is losing their bets. In fact JB Hi-Fi shares are up 45% over the past year and 144% over the past 5 years to make the short bets even more curious. In additional to capital losses shorts will also be on the hook for the substantial dividend payments owed. Ouch. 

Metcash Limited (ASX: MTS) is the wholesale IGA supermarkets supplier and Mitre10 home hardware store operator that has 9% of its scrip shorted. Traders are probably betting rising competition will put the squeeze on market share, sales, and profit margins for its core IGA business in a triple-whammy type effect. 

NextDc Ltd (ASX: NXT) is a market darling for some investors that has more than tripled over the past 5 years as the data centre builder and operator benefits from the exponentially-growing demand for its online data storage capacity. However, it also has a lot of debt and minimal profits relative to its valuation as it invests heavily for the future. It has a high 13.2% of its scrip shorted. 

Galaxy Resources Limited (ASX: GXY) is the lithium miner with mining tenements in WA, Argentina and Canada. The stock is down 63% over the past year and hit a 52-week low today as short interest rises to 16.9%. Its problem, inter alia, is that lithium prices have been falling as more supply comes onto the market and global growth slows. 

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 has no position in any of the stocks mentioned. 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

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 »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »