Every day the Financial Conduct Authority publishes a list of all short positions in UK listed companies that have been disclosed. This is a helpful list, as it helps investors track shorts in stocks and gain from the advantages that can be achieved from this valuable market data.
Of course, this daily report is only designed for information purposes and is not supposed to be an indicator of past, present or future performance. Still, it’s interesting to see which companies investors are betting against the most.
High valuation
Right at the top of the list, with 10.6% of its shares out on loan is Sainsbury’s (LSE: SBRY).
Sainsbury’s has been dragged into the UK supermarket price war, and it is looks as if investors believe that the retailer won’t be able to hold its ground against the discounters.
But unlike other companies in this piece, Sainsbury’s is not overvalued and there are few obvious reasons why short sellers would want to target the company. Indeed, Sainsbury’s currently trades at a forward P/E of 10.6, offers a yield of 4.7% and trades 20% below its net asset value. On this basis, for the time being there seems to be no obvious reason to avoid Sainsbury’s.
On the other hand, it might make sense for investors to avoid Morrison Supermarkets (LSE: MRW). 9.2% of Morrisons’ shares are out on loan to short sellers.
It seems as if traders are betting that the Morrisons’ valuation will fall back in line to that of its peers. There are also concerns that the group’s new management could cut the lofty dividend payout.
Morrisons currently trades at a forward P/E of 15.6 and offers a dividend yield of 6.3%, compared to the sector average valuation of 10 times forward earnings and average yield of 4.8%.
Law Change
Pub operator Greene King (LSE: GNK) is currently trying to acquire the Spirit Pub Company, which has agreed to a £774m takeover offer from its larger peer.
However, the two pub chains have not yet sealed the deal, and with 9.9% of Greene King’s shares out on loan to short sellers it seems as if many investors believe that the deal will fall through. The recent move by MPs to end the pub/beer tie appears to be the reason behind this view.
What’s more, Greene King currently trades at a premium valuation of nearly 14 times forward earnings, even though the group’s earnings at set to fall this year.
Impossible to value
Traders have long been sceptical of Nanoco’s (LSE: NANO) prospects. At present around 7.9% of the company’s shares are out on loan to short sellers and it’s easy to see why.
At current prices Nanoco has a market capitalisation of £250m, even though the company is not making a profit and has only £18.5m of assets, according to its 2014 annual report.
Further, according to City forecasts Nanoco is not expected to report a profit until 2016. A profit of £4.2m is expected for 2016, earnings per share of 1.7p. These figures indicate that Nanoco is trading at a 2016 P/E of 55, a lofty valuation, which leaves little room for error. A major investor has also been reducing their stake in the quantum dot producer.
Continues to disappoint
Traders have sold short 6.3% of Ocado’s (LSE: OCDO) shares, as they believe that the company will continue to disappoint, despite its high valuation.
For example, Ocado currently trades at a forward P/E of 115.8, which does look cheap when compared to the company’s projected growth rate — City analysts believe Ocado’s earnings per share will expand 155% this year.
Nevertheless, Ocado has a history of missing forecast after forecast, and it would appear as if traders are betting that the company will fail to targets once again next year. If the company does indeed fail to meet these lofty growth targets then its shares will fall rapidly back to earth.