Short Stories

Topping the short interest charts

It is clear from this chart of Topps Tiles (TPT) that short investors have increased their positions significantly since January this year, when the percentage of the company's Market Cap on Loan (%MCOL) was 6%. It is now 13%, although short positions have been covered (it was 15% in mid-April).

Utilisation is at 37%, so there is plenty still left to borrow. There are 28.5 Days to Cover. The consumer feeling the pinch has led to dwindling share prices and short positions being increased substantially in the retail sector since the start of this year, as you can see from this graph below of its average Market Cap on Loan. However, like Topps Tiles as an individual stock, short positions have been covered since late last week.

Sears

Sears Holdings Corp (SHLD) reported an unexpected first-quarter loss today, as sales fell at its Kmart and Sears stores and markdowns hurt margins, sending its shares down about 4% before the opening bell, says Reuters. The retail giant, one of our best timed shorts of 2007, has grabbed the attention of short investors, who started to increase their positions in the company on the May 12th, and more significantly on May 19th. You will see from this two-year short interest chart of Sears, that short investors have timed coming to the trade almost perfectly in every instance. Utilisation is now at 83%, up from 3% in July last year. 11.29% of the Market Cap is now lendable. For those investors who wish to close their positions and take profits, there are 26 Days to Cover. The average Utilisation for the rest of the S&P 500 is 7%, and for the rest of the North America Retailing it is 87%.

Another well-timed short at the end of last year was Blockbuster Inc (BBI), which, as you can see from this graph, had short sellers dramatically increase their positions, from 20% MCOL to 50% MCOL as the share price plummeted from 5.5USD to 3USD between mid-October and November 2007. Shorts have now been covered as the share price starts to bounce.

Another day, another airline

We have seen the increase in short interest in Cathay Pacific, AFR (American Airlines), and British Airways over the past six months. Northwest Airlines (NWA), a US Small Cap company, has also seen a significant rise in the percentage of its Market Cap on Loan (%MCOL), from 3% on May 21st, to 5% today. This is juxtaposed with a drop in share price - from 9.3USD on May 15th, to 1USD today, showing that although profitable trades will no doubt be made, investors perhaps increased their positions 6 days too late (please see graph). However, Utilisation is at 20%, so there is still 80% of the supply left to borrow should short sellers think that the price will drop further. For those who disagree, there are 8 Days to Cover. 25% of the Market Cap is Lendable. The average Utilisation for the rest of the US Small Caps is 18%, and for the rest of the North America Transportation it is 13%.

Short sellers no longer hungry for food

As you can see from this graph, short investors have started to cover their short positions in Northern Foods (NFDS) since late March, further fueling the notion that food prices are on the up. 13.79% of NFDS' Market Cap is on Loan (%MCOL) to short investors, down from 17% in mid-March, which was a two-year high. Utilisation has decreased from 54% to 43% in the past week. Interestingly, there are 33 Days to Cover, a significant amount for people who want to take profits imminently. Despite this short covering NFDS is still the second most borrowed stock in the UK Food and Beverage sector, after Uniliver at 13.98%.

This short covering is also true of Premier Foods (PFD), which now has 8% of its Market Cap on Loan, down from a similar two-year high in mid-April of 11.5%. Utilisation is at 27%, and there are 13.21 Days to Cover. Associated British Foods (ABF) has also seen a good deal of short covering, with its %MCOL dropping from 5.8% to 4% in the last six weeks.   

Asian Rail

It looks as if the increasing rise in fuel prices could be having repercussions wider than just airlines, who we blogged on yesterday. China Railway Group Ltd (0390), whose subsidiaries include irrigation works, ports, docks and airports, has seen its share price fall from 9HKD in January to 7.3HKD today. Thus, the percentage of the company's Market Cap out on Loan to short investors (%MCOL) has increased from 0% in December, to 8.7% today; a sizable amount for a an Asian stock (please click to enlarge graph). Even more surprisingly, Utilisation is at 54%, so there is still plenty left to borrow, with 9 Days to Cover for those investors who wish to buy back shares. The average Utilisation for the rest of the Asia Capital Goods sector is 13%, and for the rest of the Hong Kong Small Caps it is 18%. This stock is by far the most borrowed company in its sector, with Noble Group Ltd (N21) having a %MCOL of 4% in second place.

In the Hong Kong Small Caps, Guangshen Railway (0525) is the most borrowed company, with 10% MCOL (big fry for Asia). It appears that railways are fairly easy to borrow, as this stock's Utilisation is also low at 37%. There are 19.74 Days to Cover for those who think the price will rebound - it has already fallen from 6.9HKD to in October 2007 to 4.2HKD today and has risen slightly since May 12th. 24.5% of the Market Cap is still Lendable as opposed to China Railway's 4.11%.

Fuel prices lead shorts to build up in airlines

Top U.S airline American Airlines Inc has warned rising fuel costs would force it to eliminate flights and hundreds of jobs. CEO Gerard Arpey told the FT: "The airline industry was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S economy."

You will see from this chart that AMR, who own all of American Airline's common stock, has seen a recent surge in short interest - from 13% in early April to 18.3% today. Interestingly, it is still fairly easy to borrow AMR, with Utilisation at 48%. There are 15 Days to Cover. The average Utilisation for the rest of the U.S Small Caps is 18%, and for the rest of the North America Transportation it is 13%.

America is not the only place where the rising cost of oil has affected air travel. In the UK, British Airways has seen a rise in short interest, after the fiasco at Terminal 5, with 10% of its Market Cap on Loan. Although short positions have been covered in easyjet, there was a 400% increase between August 2007 and mid-April 2008 from 2% to 8%. In Hong Kong, Cathay Pacific has seen a huge amount of short interest (as seen by this graph), with 5% of its Market Cap on Loan (big for an Asian company).

Air China also has 4.5% of its Market Cap on Loan, a rise from 3% in early April.

Downey's cushion 'not so soft after all'

Downey (DSL), the U.S savings and loan holding company, has seen its share price plummet in the past year - from 75USD in July 2007, to 8USD today. Surely another victim of the sub prime fiasco, Thestreet.com said on April 25th that the company, who are also involved in real estate investments, may soon join the growing list of financial institutions seeking an additional capital cushion against souring loans. In previous entries, the journalist writing for Thestreet noted Downey's loan quality was not as bad as it appeared on the surface, but based on the partial set of first quarter numbers, Downey's loan quality and capital ratios paint a more grim picture compared to the last quarter.

Short investors have cottoned on to this observation, increasing their positions in Downey significantly since mid-April this year, when the percentage of Downey's Market Cap out on Loan (%MCOL) to short investors increased from 23% (already a sizeable figure) to 35% today. Utilisation is at 73%, so it could be hard and moreover expensive to borrow this stock. In context, the average Utilisation for the rest of the Russell 2000 is 34%, and for the rest of the North America Banks it is 22%. For those investors who believe that Downey's price will rise, resulting in a large demand for shares to be returned, there are 25 Days to Cover, a high number which if the sentiment towards Downey's price becomes positive, could galvanise a short squeeze. 21.83% of the Market Cap is still Lendable.

Marks & Spencer

Despite the recent bounce in Marks & Spencer's (MKS) share price - from 350p in early May to 400p today, short sellers have continued to increase their positions in the retail giant, with around 8% of M&S' Market Cap out on Loan (%MCOL, pre dividend) to investors. Although M&S has reported a 4.3% rise in annual profits to £1bn, the %MCOL has increased 100% since January this year. This graph shows a recent spike in stock on loan; but this is down to dividend trading, where investors hold on to the stock for tax arbitrage reasons. The genuine short interest occurred just before this spike. Utilisation is at 27%, so there is still plenty left to borrow. There are 16 Days to Cover. The average Utilisation for the rest of the FTSE 100 is 8%, and for the rest of the EMEA Retailing it is 34%. Other stocks in this sector with a high %MCOL include Signet (SIG) at 20%, Carphone Warehouse (CPW) at 16%, Next (NXT) at 13% and Kingfisher (KGF) at 12%.

Manitowoc and Enodis

U.S. diversified manufacturer Manitowoc (MTW) has increased its offer for British kitchen equipment maker Enodis (ENO) to 1.08 billion pounds to trump a rival offer. Manitowoc said on Monday that it was offering 294 pence a share for Enodis, topping an agreed bid of 282 pence a share from U.S. rival Illinois Tool Works (ITW). Enodis shares rose 2 percent to 304 pence by 8.05 a.m, according to Reuters.

Enodis, who supplies companies such as Macdonald's (MCD) and Burger King (BKC) with fryers, has just 0.9% of its Market Cap on Loan (%MCOL) to short sellers. Utilisation is low 3.7%. As is typical of a bidder, Manitwoc, who is paying a dividend of on May 30th (as seen by the spikes; the last dividend was only 0.05% yield) has seen an increase in short interest over the past year. In May 2007, 0.6% of its shares were on loan, and this figure has now risen to 6.3% (please click to enlarge chart). Utilisation for Manitwoc is at 17%, so there is still plenty left to borrow if short investors believe that this bid price will grow up. The average Utilisation for the rest of the S&P500 is 7.6%, and for the rest of the North America Capital Goods it is 10%. For those wishing to close out their short positions in Manitwoc, there are 11.3 Days to Cover.

Vineyard National Bancorp

Vineyard National Bancorp (VNBC), the financial holding company, who had 20% of their Market Cap out on Loan to short investors (%MCOL) in early October 2007, now has 10.2% MCOL. Although this is obviously an increase of 100%, the short interest in this stock did decrease to 3% in early April (please click to enlarge graph). The recent rise is in line with the company's announcement of a loss of $16.6m for the first quarter, compared with net earnings of $5.5m for the same quarter last year.

Utilisation is at 76%, and there are 18 Days to Cover. The average Utilisation for the rest of the Russell2000 is 34%, and for the rest of the North America Banks it is 22%. Indymac Bancorp (IMB) has 40.62% MCOL, Downey Financial (DSL) has 31.59%, Washington Mutual (WM) has 29.37%, and the Bank of Montreal (BMO) has 25.44%.