Short Stories

Wachovia

Short interest is continuing to rise in Wachovia (WB). The percentage of the bank's Market Cap out on Loan to short investors has risen by 100% since mid-March this year; from 6% then to 12% today. Fool.comsaid Wachovia deserves a big "DUH" for just now realising that letting borrowers pay so little is a bad idea (with regards to WB announcing on Monday that it is eliminating the "pay less" option on its Pick-a-Payment mortgage loans).

Utilisation is at 38%, up from 20% earlier this year, and there are 16.76 Days to Cover.

Lehman

Unsurprisingly, there has been a significant increase in short positions in Lehman Brothers (LEH), and particularly since October last year. Back then, the percentage of Lehman's Market Cap on Loan (%MCOL) was 5%, and today it is 16% (please click to enlarge graph). Utilisation is at 54%, so there is still a fair amount of stock available for borrowing. There are 11 Days to Cover. The average Utilisation for the rest of the S&P 500 is 7.45%, and for the rest of the North America Diversified Financials it is 10.45%. The FT reported this morning that 'Short-selling on Lehman hits a record level." The data would certainly justify that analogy for the past two years. The value of the bank has nearly halved in the past year, so for those investors who increased their positions at the correct time, substantial profits would have been made. Other heavily borrowed companies in this market include Washington Mutual (WM), with a %MCOL of 24.67%, and Capital One Financial Corp (COF), with a %MCOL of 22.61%, which will be announced as one of Data Explorers' best-timed H1 shorts for 2008. Please call Jessica Johnson on +44 207 392 4011 or email jessica.johnson@dataexplorers.com if you would like to receive a copy of this report. Please click here to go to our best-timed shorts of 2007.

Short interest goes sky-high in United Airlines

United Airlines, the number two airline in The United States, has been battered along with the rest of the industry (a subject we have blogged on recently) by soaring fuel prices, says the FT. As you can see from this graph, which traces the percentage of UAL's (UAUA), (the parent of United Airlines) Market Cap on Loan (%MCOL), short interest has increased by 100% - from 8% MCOL in mid-May, to 16% today. Investors who increased their positions at the correct time will have made a very profitable trade, as the share price has halved - from 16USD on May 2nd to 8USD today. Utilisation is at 18% and there are 6 Days to Cover. The average Utilisation for the rest of the North America Transportation sector is 13.54%, and for the rest of the US Small Caps it is 18.16%. AMR (AMR, also mentioned in our other blog), who own all of American Airlines' common stock, is also a heavily borrowed company, with 21% of their shares on loan to short investors. Utilisation is at 45% and there are 12.5 Days to Cover. Please see the graph below of AMR's short interest. Please click here to visit on of our other airline blogs. 

Hurco

US Industrial Technology Company Hurco (HURC) has seen a surge in short interest over the past year. Back in May last year, the company had 4% of its Market Cap on Loan (%MCOL) to short investors - that figure has now risen to 16.6%. Reuters reported on May 23rd that HURC had posted a second-quarter profit that missed Wall Street's estimates, "hurt by pricing pressures and increased product costs, sending its shares tumbling as much as 19%." It is in the last three months that the short interest has really started to rise; up from 10% on February 25th to today's figure.  Utilisation is at just 43%, which means there is still plenty left to borrow. There are 7.45 Days to Cover and 33% of the Market Cap is Lendable. The average Utilisation for the rest of the North America Capital Goods sector is 9.5%, and for the rest of the US Small Caps it is 18%.

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%.

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.

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%.

Management Consultants et al.

Accenture Ltd (ACN), the New York based management consultancy service, has seen a significant rise in short interest in the last eight to nine months. In October 2007, the company, who specialise is technology sector, had just 1% of its Market Cap on Loan (%MCOL) to short investors. By January this year, it had 3.8% MCOL, although since then investors have begun to close out their positions as the price starts to rise. There are 13 Days to Cover for those who wish to buy back shares and take profits. Utilisation is at only 8%, so there is still plenty left to borrow. The average Utilisation for the rest of the US Small Caps is 18%, and for the rest of the North America Software Services it is 12%; in fact the sector in general has remained between 9% and 12% Utilised, which is a very low percentage, for the past two years.

Equifax (EFX), another global provider of solutions for businesses and consumers (which includes credit reports for those seeking to obtain mortgages etc), has also seen a rise in its short interest; from 4% in October 2007 5.6% today. Utilisation is at 24%, and there are 17 Days to Cover. The average Utilisation for the rest of the S&P500 is 7%, and for the rest of the North America Consumer Services and Supplies it is 15%, although this sector has increased 50% in the past two years.

Administaff (ASF),  who provide Personnel Management Systems including benefits and payroll administration, has  9.3% MCOL, with 28% Utilisation. There are 13 Days to Cover. The average Utilisation for the rest of the Russell2000 is 35%, and it is also a member of the Consumer Supplies Sector.

Information Services Group Inc (III), who provide fact-based sourcing advisory services, has 13% MCOL, up from 10% last October. It is 52% Utilised, and is also issuing a convertible bond for January 2011.