Every day the Financial Conduct Authority publishes a list ofall short positions in UK listed companies that have been disclosed. This is a helpful list, as it helps investors track shorts in stocks and gain from the advantages that can be achieved from this valuable market data.
Of course, this daily report is only designed for information purposes and is not supposed to be an indicator of past, present or future performance. Still, its interesting to see which companies investors are betting against the most.
Right at the top of the list, with 10.6% of its shares out on loan isSainsburys(LSE: SBRY).
Sainsburys has been dragged into the UK supermarket price war, and it is looks as if investors believe that the retailer wont be able to hold its ground against the discounters.
But unlike other companies in this piece, Sainsburys is not overvalued and there are few obvious reasons why short sellers would want to target the company. Indeed, Sainsburys currently trades at a forward P/E of 10.6, offers a yield of 4.7% and trades 20% below its net asset value. On this basis, for the time being there seems to be no obvious reason to avoid Sainsburys.
On the other hand, it might make sense for investors to avoidMorrison Supermarkets(LSE: MRW). 9.2% of Morrisonsshares are out on loan to short sellers.
It seems as if traders are betting that the Morrisons valuation will fall back in line to that of its peers. There are also concerns that the groups new management could cut the lofty dividendpayout.
Morrisons currently trades at a forward P/E of 15.6 and offers a dividend yield of 6.3%, compared to the sector average valuation of 10 times forward earnings and average yield of 4.8%.
Pub operatorGreene King(LSE: GNK)is currently trying to acquire theSpirit Pub Company, which hasagreed to a 774m takeover offer from its larger peer.
However, the two pub chains have not yet sealed the deal, and with 9.9% of Greene Kings shares out on loan to short sellers it seems as if many investors believe that the deal will fall through. The recent move by MPs to end the pub/beer tie appears to be the reason behind this view.
Whats more, Greene King currently trades at a premium valuation of nearly 14 times forward earnings, even though the groups earningsat set to fall this year.
Impossible to value
Traders have long beenscepticalofNanocos(LSE: NANO) prospects. At present around 7.9% of the companys shares are out on loan to short sellers and its easy to see why.
At current prices Nanoco has a market capitalisation of 250m, even though the company is not making a profit and has only 18.5m of assets, according to its 2014 annual report.
Further, according to City forecastsNanoco is not expected to report a profit until 2016. A profit of 4.2m is expected for 2016, earnings per share of 1.7p. These figures indicate that Nanoco is trading at a 2016 P/E of 55, a lofty valuation, which leaves little room for error. A major investor has also been reducing their stake in the quantum dot producer.
Continues to disappoint
Traders have sold short 6.3% ofOcados(LSE: OCDO) shares, as they believe that the company will continue to disappoint, despite itshigh valuation.
For example, Ocado currently trades at a forward P/E of 115.8, which does look cheap when compared to the companys projected growth rate City analysts believe Ocados earnings per share will expand 155% this year.
Nevertheless,Ocado has a history of missing forecast after forecast, and it would appear as if traders are betting that the company will fail to targets once again next year. If the company does indeed fail to meet these lofty growth targets then its shares will fall rapidly back to earth.
So, it could be sensible to avoid Morrisons, Green King, Nanoco and Ocado. But whether or not you share my view on these companies, I’m confident that you can benefit from readingthis new report from The Motley Foolthattakes you throughthe seven key steps you need to take to become a stock market millionaire.
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