Every week the FCA discloses the “short interest” on all listed companies in London. As a private investor I believe it’s very important to look at this list regularly, to get a sense of what the larger institutions are doing. It could save you from losing your investment.
These three companies are the most shorted stocks in London as of today.
| Company | Short Interest |
|---|---|
| Carillon | 20.31% |
| Ocado Group | 18.04% |
| Morrison Supermarkets | 13.21% |
Most shorted stock
Carillon (LSE: CLLN) has been beaten down over the last two years and only a few weeks ago was trading at levels not seen since 2008. The support services company is the most shorted stock in London and no less than 15 hedge funds have short positions. Nevertheless the stock has rallied 50p in the last 6 weeks and it could be the time to buy.
The stock yields a fantastic 6.2%, with dividend cover of 1.8. Those are impressive numbers and suggest that this stock could be an integral part of an income portfolio. The stock trades on a very low P/E ratio of just over 8, which again shows what good value the stock is. It may be the most shorted stock in the UK, but it could rise far higher in the next year.
Takeover talk?
Ocado (LSE: OCDO) has forever been a popular stock to short. Its inability to make a decent sized profit and justify its lofty valuation has made it a target for the hedge funds. Currently the stock trades on a P/E ratio of over 130 and net debt is increasing every year. That P/E is what attracts the speculative bets that the share price will come down, but for an ‘Internet’ stock the P/E isn’t out of the ordinary.
The recent tie up with Amazon has had investors talking of a takeover, but I think this is a tad premature.The company may well become a target one day but it needs to be chucking off cash and increasing margins for it to be an attractive business to buy. For me Ocado is a slam dunk sell and I agree with the high short interest in the stock.
Troubled supermarket
Morrisons (LSE: MRW) is next on the FCA’s list of most shorted stocks. In fact all big supermarkets are somewhere on the shorting list, which tells you something about the sector. Intense competition from smaller companies has made it very hard to generate the huge profits once seen by the supermarket giants.
Morrsions is still trading above where it should be, the P/E is currently a punchy 19, which is slightly higher than peers. The company has turned it around after abysmal years in 2014 and 2015, but I would hesitate to invest in the stock now. Competition is only going to get fiercer and the margins supermarkets operate on are already wafer thin. Just like Ocado, this is one to avoid.
