Shorted shares are those that a trader ‘borrows’ if they believe the stock will decrease in value. The investor then sells them at the current market price, aiming to buy back the same number of shares later at a lower price, return the shares to the lender, and pocket the difference as profit. But which UK stocks are four of our free-site writers taking a contrarian position versus the short-sellers?
Barratt Developments
What it does: Barratt Developments is Britain’s biggest housebuilder by volume, and a major supplier of family homes.
By Royston Wild. Barratt Developments (LSE:BDEV) is the joint-seventh-most shorted stock on the London stock market. Like boohoo Group and Burberry Group, a weighty 4.3% of its shares are currently shorted.
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This bearishness reflects weaker-than-usual activity in the housing market. Mortgage affordability remains under pressure as interest rates remain stubbornly high. And they will remain so if the Bank of England fails to cut its benchmark markedly from current levels.
Reflecting these tough conditions, Barratt predicts it will complete on 13,000 to 13,500 homes this financial year. That’s down from 14,004 last year, and 17,206 the year before that.
I retain a bullish take on the FTSE 100 builder, however. Once interest rates begin to (in all probability) fall in the coming months, homes demand could pick up strongly again.
And over the long-term, sales of newbuild properties should steadily rise as Britain’s population rapidly rises. Labour’s pledge to loosen planning rules — thus creating 1.5m new homes between now and 2029 — should also give Barratt’s bottom line a healthy boost.
Royston Wild owns shares in Barratt Developments.
Burberry
What it does: Burberry is a British luxury fashion brand founded in 1856. It’s most well-known for its renowned check pattern.
By Charlie Keough. It has been a rough 12 months for British fashion icon Burberry (LSE: BRBY). It’s down a massive 68.2% at the time of writing, and people are betting against the stock as such.
But not me. Instead, I reckon now could be a smart time to consider buying some shares. Let me explain why.
The stock is now the cheapest it has been in 14 years. It trades on a price-to-earnings ratio of just 9.5, way below its historical average of around 22.
Burberry is likely to face further challenges in the months ahead. It expects to post an operating loss for the year. And with ongoing choppy economic conditions, its share price may continue to suffer in the near term.
But looking past that, I’m confident Burberry will be able to recover. Spending will pick up again in the years to come as interest rates are cut. We’ve seen the Chinese economy wobble recently, but I remain bullish on its long-term growth prospects. China is one of Burberry’s biggest markets.
Charlie Keough does not own shares in Burberry.
Domino’s Pizza
What it does: Domino’s Pizza sells handcrafted pizzas to customers around the UK and the Republic of Ireland.
By Paul Summers. There aren’t many heavily-shorted shares that I like the look of but I’d make an exception for Domino’s Pizza (LSE: DOM).
Granted, things could be better. The stock has been in awful form in 2024 so far and half-year results in August did little to reassure the market. Annual profit is now expected to come in at the lower end of market expectations due to “a slow start to the year”.
However, things seemed to have picked up in recent months, helped by stellar sales during Euro 2024.
Domino’s Pizza also boasts many of the quality hallmarks I look for, including high operating margins and returns on the investment it makes in the business.
Indications that inflation will stay around 2% could lead to a sustained recovery in consumer confidence and push short-sellers to move on.
In the meantime, there’s a forecast dividend yield of 3.9%.
Paul Summers has no position in Domino’s Pizza
RS Group
What it does: RS Group is a global distributor of 750,000+ maintenance, repair, and operations components to the industrial sector.
By Zaven Boyrazian. RS Group (LSE:RS1) is one of the most heavily shorted companies on the London Stock Exchange right now. The electronic components supplier is trudging through rather unfavourable conditions. Due to global inventory overstocking following the pandemic, paired with economic instability, demand for electronic devices, especially from consumers has tumbled.
The consequence is a stagnating revenue stream with rising costs, dragging down the bottom line. So, it’s easy to understand investor pessimism.
However, there are some encouraging signs emerging of a bounceback. Economic trends within the manufacturing sector indicate a slow but steady recovery. And RS Group has subsequently reported the return of modest growth to its top line. As for margins, management is currently executing a £30m annual savings programe, £9m of which has already been achieved, with a further £22m on track to be delivered by March next year.
Pairing this with multi-milion pound contracts in Australia and a falling debt burden, a buying opportunity may have emerged for patient investors, in my opinion.
Zaven Boyrazian does not owns shares in RS Group.
