Do these 3 FTSE 100 stocks deserve to be hated?

Paul Summers takes a look at three FTSE 100 (INDEXFTSE:UKX) companies that feature on the list of most-shorted stocks. Is this hate justified?

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Scene depicting the City of London, home of the FTSE 100

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Before making any investment, I always check to see which stocks are attracting the most attention from short-sellers. Unsurprisingly, some of the market’s more risky sectors, such as oil & gas and mining, are well-represented here. However, a number of established FTSE 100 stocks also feature. Today, I’m taking a closer look at the top three. 

Hargreaves Lansdown

Occupying the third spot of least-liked top-tier stocks is online stockbroker Hargreaves Lansdown (LSE: HL). I find this quite surprising considering how highly the company is regarded by its users.

Then again, recent trading has disappointed the market. The shares tumbled in August as profits missed expectations, despite a flurry of interest in meme stocks. All told, the platform provider’s valuation has fallen 13% in the last year. The usually-pedestrian FTSE 100 is up 18%. 

Will things get worse before they get better? Possibly. The recent growth in new client numbers seen could slow as lockdown savings dwindle. In light of competition, Hargreaves may need to reduce its fees too.

There’s still lots to like. Returns on capital and margins are seriously high (albeit falling) and the company still possesses a stonking amount of cash. At 26 times forecast earnings, HL shares are notably cheaper than those of rival AJ Bell (36 times).

One for my watchlist, I think.

Johnson Matthey

Catalyst systems provider Johnson Matthey (LSE: JMAT) is the second most hated FTSE 100 member right now, at least based on short-selling activity. While nowhere near the top spot (currently occupied by cinema operator Cineworld), four funds are still betting that its share price will fall in the near term.

Again, this is quite surprising. Concerns over climate change and resource scarcity continue to hit the headlines. As a self-styled “global leader in sustainable technologies“, this surely puts JMAT in a good position. Recent news that the company has joined a British consortium to develop solid-state batteries for electric vehicles is just one example of this.

Can I get better capital growth elsewhere? Well, with a market cap of £5bn, JMAT shares certainly won’t double in value overnight. Having climbed only 7% in value in the last 12 months, the potential costs of investing here and not elsewhere can’t be ignored either.

Even so, a P/E of just 11 looks pretty good value to me. 

Sainsbury’s

Easily the most shorted FTSE 100 stock right now is supermarket firm Sainsbury’s (LSE: SBRY). That may seem strange considering the share price is up 50% in the last year, partly on speculation that the company is now a bid target. Indeed, a resolution to the takeover battle of Morrisons has now led to whispers that the losing candidate — Fortress Investment — will now turn its attention to the UK’s second-biggest grocer.

It’s not hard to see the appeal. Despite the recent momentum in its share price, Sainsbury’s stock still changed hands for 13 times earnings as markets opened this morning. That could prove to be a great deal, especially if a bid leads to a ‘short squeeze’ (in which the more pessimistic traders rush to close their positions).

However, I believe no company is worth buying purely on takeover rumours. Away from speculation, Sainsbury still appears a very average business. Margins are punishingly low and competition for shoppers is always fierce. The ongoing supply chains issues could also make for a tough Christmas period. I’m steering clear.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and Morrisons. 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.

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