The Motley Fool

Why Carillion plc is STILL the UK’s most ‘hated’ stock

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

I know what you’re thinking. How can you possibly measure how ‘hated’ a stock is, without surveying every investor in the country? Well, it’s not that difficult actually, as investors tend to vote with their money. And right now there are fund managers out there ‘betting’ millions of pounds that the share price of Carillion (LSE: CLLN) will sink further. I’m talking about the dark art of short selling.

Spooky

For those of you unfamiliar with the practice, short selling is when investors ‘borrow’ shares from a broker, then proceed to sell them on the market in the hope of seeing the price drop. If all goes to plan, they buy the shares back at a lower price, return the shares, and pocket the difference. Although the practice is perfectly legal and legitimate, there are some who believe it to be unethical, myself included. But that’s another topic altogether.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

The short sellers were spot on earlier this year, when by 9 July more than a quarter of Carillion’s shares were ominously being shorted. A shock profit warning the very next day, accompanied by the news that net debt would be higher than expected, led to the departure of the CEO, and a suspension of the dividend. Sounds spooky, but the short selling activity had been building up for months, and coincidentally reached a climax the day before the trading announcement on 10 July.

Relegated

Investors were less than impressed with the news, and the shares migrated south on a truly epic scale, falling below the £1 mark for the first time since the start of century, then further still to 42p, easily an all-time low. To make matters worse, the once-mighty Carillion suffered the indignity of being relegated from the FTSE 250 at the next index reshuffle two months later.

It seems that shareholders would have done well to take heed from the short sellers on this occasion. But I must stress that they don’t always get it right. Since then, there’s been no shortage of news flow around the company, with a whole raft of management changes, and financial advisors being called in to help sort out the mess. And yet the horror show has continued, with another profit warning just a couple of weeks ago, along with the announcement that the company is likely to breach its financial covenants. Crikey!

Safety first

For the unfortunate few that have still held on to their shares, I will at least provide a glimmer of hope. Despite its predicament, Carillion has been successful in winning a raft of new contracts in recent months, and some analysts believe the group is simply too big to fail, with some form of government intervention possibly even be on the cards. This may give loyal shareholders a reason to regain some optimism, especially with the shares trading at a bargain basement price-to-earnings ratio of just one.

But such a low multiple often comes with a health warning (or perhaps I should say a wealth warning), and with almost a fifth of Carillion’s stock still being shorted, I’d be inclined to say that new investors should stay well clear. As always with construction firms, it’s safety first.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.