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Are the 10 most shorted shares on the FTSE 350 in your portfolio?

Photo: Davide D'Amico. Arrow overlaid. Licence: https://creativecommons.org/licenses/by-sa/2.0/

Whether or not you trust the opinion of hedge funds and investment banks no-one but stubborn contrarians likes any of their holdings to be among the most hated in the City. So let’s jump into the list of the 10 most shorted stocks in the FTSE 350 to see whether your favourite is included.

Company Short position
Carillion 21.34%
WM Morrisons 18.97%
Ocado Group 17.36%
Tullow Oil 13.78%
Ladbrokes 11.29%
Weir Group 10.99%
Mitie Group 10.18%
J Sainsbury 8.92%
Victrex 7.98%
Aggreko 6.81%

Source: Castellian Capital, FCA                       

For construction giant Carillion, traders’ negativity comes from several years of tepid revenue growth and stagnant earnings even as the company switches to supposedly higher margin services contracts. Net debt may be falling but until Carillion has improved margins and earnings I won’t be going long on the cyclical builder.

Grocer WM Morrison (LSE: MRW) shares have been a favourite short position for years as continued price wars have decimated profits for all major grocers. While the company’s turnaround is bearing fruit, falling market share and collapsing margins leave little room for shares to return to previous highs.

There’s a similar explanation for the struggles of online grocer Ocado (LSE: OCDO). Although sales continue to grow at a rapid clip the company has little pricing power and the entry of Amazon Fresh into the already crowded UK market doesn’t portend well for this relative minnow.

Take the problems of oil majors across the world then add in a 62% gearing ratio and the unpopularity of Tullow (LSE: TLW) is understandable. But with underlying operating costs per barrel of only $13.40, capital expenditure falling and production increasing significantly, the negativity around Tullow may be overblown.

Shake-ups in the gambling industry have investors betting heavily against the ability of Ladbrokes to adapt to lower footfall in high street shops, increased regulation of betting machines and a shift to online gambling.

Manufacturing pumps for oil producers and miners has made for a rough few years at Scottish engineer Weir. There are early signs of a recovery in capital expenditure in both industries but with 2016 expected to mark the fourth straight year of falling earnings, I won’t be taking the plunge on Weir just yet.

Brexit has been key to investor concern over the prospects for outsourcer Mitie (LSE: MTO), which blamed uncertainty over the referendum results for a profit warning in September. With businesses and government agencies evidently holding off on contracts until the dust settles I wouldn’t be betting on Mitie shares rocketing anytime soon.

Like Morrisons and Ocado, shrinking market share and increased competition from budget chains have hammered investor confidence in J Sainsbury (LSE: SBRY). Spending £1.4bn for troubled business Argos will only dilute management’s focus on turning around the core business. I expect rough seas ahead.

Plastics producer Victrex has become a target for short sellers due to falling sales to the oil & gas industry and regulatory scrutiny of its medical implants in the US. Long term though, being the market leader in a growth industry alongside stunning margins makes me think Victrex could be worth a closer look.

Woes in the oil & gas industry have also dented confidence in generator provider Aggreko. A profit warning late last year didn’t help and investors remain worried that continued weakness in emerging markets could spell trouble as debt rises.

Of course, at the end of the day there's nothing to say that the City's bets against these stocks will end up being right. But if these bearish opinions worry you, I'd suggest checking out the Motley Fool's free report on five high quality defensive shares that even the bravest traders would hesitate to short.

That's because global reach, incredible pricing power and relatively recession-resistant revenue have led each of these shares to dramatically outperform the FTSE 350 for decades now.

To discover why the Fool's analysts are so bullish on these blue chips, simply follow this link for your free, no obligation copy of their report.  

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Mitie Group, Victrex, and Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.