Every day the FCA publishes a daily short positions report, which lists the most heavily shorted, or as I like to call them, the most disliked stocks traded in London.
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.
Sainsbury’s (LSE: SBRY) tops the list as it has done for some time now. According to the FCA’s latest report, 11.6% of the company’s float is short.
Monitise (LSE: MONI) is up next and the company has 7.3% of its float out on loan to short sellers. Unsurprisingly, Morrisons (LSE: MRW) holds third place with 7% of the company’s float short and engineer, AMEC (LSE: AMEC) comes next with 6.9% of its float short. Finally, Nanoco (LSE: NANO), which has 6.7% of its float short.
But even though some investors are betting against these companies, there are still plenty of reasons to stay bullish.
Disliked sector
Of course, both Sainsbury’s and Morrisons are some of the market’s most shorted companies due to their dismal trading performance over the past few quarters. Nevertheless, as I wrote earlier this week, the UK’s supermarket sector as a whole is now staging a comeback and some believe that the worst is now over.
For example, both Sainsbury’s and Morrisons have identified the fact that they’ve fallen out of favour with core customers and are now seeking to remedy this. Sainsbury’s is launching its own joint venture with discounter, Netto. Meanwhile, Morrisons has launched a loyalty card programme and slashed prices across the board. What’s more, at present levels Sainsbury’s and Morrisons look too cheap to ignore.
High risk, high reward
Sainsbury’s and Morrisons look undervalued at present levels but it’s not as easy to put a value on Nanoco and Monitise as neither company currently makes a profit.
And it seems as if this is way investors are betting against the two early-stage companies. However, over time, the fortunes of Monitise and Nanoco could turn around.
Indeed, Monitise has attracted plenty of attention recently. The company has signed a joint venture with tech giant IBM and has inked a number of contracts with major financial institutions over the past year. Unfortunately, this good news has been mitigated by the fact that the company is still struggling to turn a profit and has missed many targets for growth.
Nevertheless, Monitise’s outlook could change dramatically as the company starts its work with. IBM.
Manufacturer of quantum dots, Nanoco has also missed profit forecasts this year. Still, the company has worked hard to sign contracts for screen development with a number of display makers from South Korea, Japan, United States, China and Taiwan for televisions, monitors and tablets. So, things could be about to change for the company.
Demanding valuation
Investors seem to be betting against AMEC due to the company’s high valuation and the falling price of oil. You see, with the price of oil collapsing, many oil development projects could be put on hold, as costs begin to outweigh the benefits. This will impact Amec’s long-term growth.
At present levels the company is trading at a forward P/E of 13.2, which is not overly demanding. However, considering the fact that the company’s earnings per share are expected to fall around 10% and the company’s outlook could be dented by a falling oil price, investors are unwilling to pay a premium valuation.
