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Companies facing a high short-interest will be profitable for bearish investors if shares fall. Investors who question why short-selling is high for a company could also profit, too. If the share price rises quickly, a “short-squeeze” could take place. This usually happens with a company reports stronger results and demonstrates its business is improving. As at November 13, companies outside of technology with a short interest to float percentage higher than 25% are listed below.
Data Source: BloombergAnalysis
The bet against
J.C. Penny (JCP) paid off for short-sellers after the company reported very weak earnings. Led by CEO Ron Johnson, J.C. Penny’s fortunes declined after Johnson introduced a new shops concept. Comparable-store sales declined by 26.1%, while Internet sales declined even more, down 37.1% to $214 million. Gross margin fell to 32.5% of sales.
Investors need to decide if the company is under a transformation that will lead to future success, or if the company is in terminal decline.
Safeway Inc. (SWY) continued to attract bearish investors. The company is facing strong competitive pressure from
Whole Foods Market (WFM) and even
Pitney Bowes Inc. (PBI) shares plunged after reporting another weak quarter. Offering a dividend yield of
13.43%, Pitney Bowes is a company whose business model is weakening.
RR Donnelley (RRD) has a short interest percent of 28.37%. Its shares hover around 9% above a 52-week low.
United States Steel Corp. (X) is attracting bearish investors. Expectation is high that steel demand will decline, led by weakness in China and Europe. In other commodities, demand is waning and prices are falling. Mining companies for iron ore are facing challenges.
Cliffs Natural Resources (CLF) recently cut exploration initiatives due to a weak outlook. This spells trouble for
Rio Tinto (RIO), Vale S.A. (VALE), and
BHP Billiton Limited (BHP).Resource Sector: Chart Comparison
In the last month,
United States Steel Corp. performed better than BHP and Vale:
Investors should be cautious with companies having a high short interest to float percentage. This is especially true when the macroeconomic headwind supports the bearish sentiment, in the case of companies in the resource sector. Companies whose business model is weakened by competition or challenges to operations require even more caution.