This blog post was originally published by Forbes.
It was an interesting and busy year for short sellers in 2013, with climbing stock markets offering opportunities for those making the right bets against the momentum. With growing concerns over the tapering and easing off of quantitative easing and stimulus measures, a number of individual names have been outpacing the broader market, either up or down, and have become synonymous with short selling and have become a regular feature in SunGard’s Astec Analytics’ weekly Top 10.
Looking at borrowed volumes, borrowing cost, utilization, client interest and news driven stories, we have compiled a top 10 list of the most shorted stocks of 2013.
1) Tesla Motors Inc. (TSLA)
Hitting our number one spot this year, perhaps as no great surprise, is the electric vehicle maker Tesla. The company saw a somewhat mixed year on the news front, notably posting its first ever quarterly profit in Q1, as well as fairly buoyant sales data in the early half of the year. This was tempered however, particularly in recent months, as its latest sales figures were taken somewhat less positively, while suffering a PR blow as reports emerged of a number of their Model S vehicles spontaneously catching fire. This image problem was not helped when George Clooney added his two cents, saying his Tesla was always breaking down so he decided to get rid of it.
From a short selling perspective, as analysed by its proxy of securities lending information, the story was no less mixed. Early in the year while the company’s share price stagnated, short sellers built up their bets against the company only to be ‘proven wrong’ with its Q1 results. Following this, these positions were quickly closed and as the company’s share price climbed – peaking at almost three times its May level in October – short positions held fairly muted. That is at least, until November, as this latest batch of concerns surrounding the company has led its stock to pull back, while short sellers are moving back into the market once again; the number of TSLA shares being borrowed having doubled since the start of November to reach its joint highest level for 2013.
2) Blackberry Ltd. (BBRY) / Research in Motion Ltd. (RIM)
One of the hottest and most talked about companies of the year, Blackberry, formally research in Motion, saw hit after hit in 2013 as its share of the ever more competitive smartphone market grew less. Despite hopes that its Blackberry 10 handset would offer a turnaround for its prospects, disappointing sales figures and staff reductions pressured its share price, as it emerged its latest handset would not prove to be a saving grace. In a latest flurry of activity, speculation that the company may be bought out petered to nothing as a bid by a Fairfax-led consortium passed its deadline.
On the short side, it would seem that as the company’s share price benefited from some rare optimism in the early months of the year; short sellers were predicating its downfall as borrowing volumes climbed to a high of over 130 million shares being borrowed. Uncertainty then dominated for a month or so, as a share price treading water was met by the covering of open short positions. As the stock plummeted in the latter half of the year however, short positions have also been on the decline – likely through a deemed lack of potential profits rather than optimism of a renewed price surge. Speculation over the Fairfax bid did see volumes surge in November however, only to fade to previous levels once it proved a moot point.
3) 3D Systems Corp. (DDD)
In many ways DDD’s interest in 2013 was very much linked to the prospects, or at least perceived prospects, of the fledgling 3D printing industry as a whole. While the markets have been wondering if, and exactly, how successful this new technology will become, DDD has seen its share price gain pace since April, able to undergo a $250 million stock offering with its stock price hardly suffering. As new software was developed, and global retailer began to offer 3D printing supplies, DDD’s strength grew.
That said data from Astec seems to show that short sellers have remained pessimistic about this idea. In the first months of the year the number of the company’s shares borrowed climbed rapidly as the share price rose – a share price rise that would later be retraced, but shown to be only muted by comparison to the overall gains made in the stock since April. As this first stock surge receded however, borrowing volumes held there levels, at which they remain to this day, with only minor fluctuations in the level surrounding the stock offering.
4) InterOil Corp. (IOC)
InterOil’s share price has seen fairly volatile trading during 2013 as both company and market based news placed pressures on the stock. Notably in May the share price saw a $20 one-day range as news emerged that it entered into exclusive negotiations with Exxon Mobil’s Papua New Guinea arm, for the development of its Elk and Antelope fields in the Gulf Province of the country. Most recently in December, the stock gapped-down a further $20 when this deal was confirmed.
On the borrowing front, the year has been somewhat in the other direction, where although there have been a few peaks and troughs, the number of IOC shares being borrowed overall were almost 30% lower than when they hit a high in February. In a classic pattern given the stock movements this would seem to suggest the short side are seeing the share declines as offering fair value, or at least little opportunity to profit, rather than a positive bias towards the company.
5) Molycorp Inc. (MCP)
Most of the news flow for Molycorp took place in the early half of the year, although more broadly its prospects have been very much tied in with the rare earth elements market and in turn economic growth in China. With rumours of a takeover bid and a $300 million capital raising, all in the first months of the year, its share price had lost 50% of its value by March. Since which time it held fairly steady, although suffering a large one-day hit in October when it announced a surprising low price for its share issue.
Astec data meanwhile suggests short selling, despite a lack of any major gains in its stock price, has been on the up-and-up all year. Since January, the number of Molycorp shares being borrowed has more than doubled, hinting at the idea short sellers may still be sceptical of where MCP’s share price stands.
6) Opko Health Inc. (OPK)
Opko Health has seen a period of generally gaining stock prices in 2013, having a secondary listing on the Tel Aviv Stock Exchange in August, while a number of insider purchases from the CEO and board members helped support the stock, particularly in the latter half of the year. In December the stock was hit further after a report from Lakewood Capital, published on Seeking Alpha, suggested the company was being traded at between 75% and 100% above its value.
The story from short sellers has been perhaps the exact opposite, where our data suggests positions have been building as the share price climbed. This classic combination of rising borrowing while the stock price climbs, would seem to suggests those on the short side have been, and remain, sceptical of the progress being made in the cash market.
7) Arena Pharmaceuticals Inc. (ARNA)
Much of the news for Arena this year has focused on its anti-obesity drug Belviq. With various stages of development and marketing, as well as US regulations and the proliferation of rival products, the company’s prospects have been seen as very much tied to its now flagship drug has shown to be doing well in its latest batch of earnings numbers. With this, although seeing some reprieve on the latest earnings results, the company’s share price has been on the slide since January; ending the year 40% lower than it started it.
Despite this Astec data suggest the short story has been somewhat more mixed, with the number of ARNA shares being borrowed seeing a number of surges during the year, elevated for most of Q1 and once again in the summer, although ending the year 20% higher and having peaked at being almost 50% higher in July.
8) JC Penney Inc. (JCP)
Starting the year off on the wrong foot with soft earnings data, JC Penney has seen it shares take hit after hit in 2013, notably with the unusual back and forth with Bill Ackman in August, after the hedge fund manager published a five page letter berating the board for not allowing him access to the company accounts despite his large shareholding.
As its share price lost ground consistently during the year, the lending data suggests a game of two halves – the first quarter generally seeing short sellers covering their positions, at this point presumably taking profit as the shares dropped, while since July borrowing volumes have been on the increase; suggesting short sellers have been betting against the stock despite the price continuing to suffer. During the last six months of the year, JCP saw the number of it shares being borrowed, the proxy for short selling, more than double to around 77 million shares.
9) Herbalife Ltd. (HLF)
Another subject of a Bill Ackman media campaign, Herbalife saw most of its headlines and interest take place after the hedge fund manager underwent a public campaign describing the company as a “pyramid scheme” and a house of cards. Despite this however, after a fairly stagnant start to the year, HLF shares continued to gain ground for most of 2013 hitting fresh record highs in December.
This pattern of positivity was effectively mirrored on the short side, with the number of HLF shares being borrowed, although holding at elevated levels in the early half of the year, from May the volume of borrowed stock has now halved.
10) Sears Holdings Corp. (SHLD)
A year of mixed signals for the retailer, weak earnings numbers in the first half year were bookended by stronger numbers towards the end. The good results helped push the share price higher, although this was eventually retraced as concerns about the company sales figures and its need to raise cash, hit the stock hard.
Astec data meanwhile suggests this price rise in the second half of 2013 brought increased short interest, with borrowing volumes almost doubling between May and July. Although perhaps tellingly the latest retracement of the stock has not been met by a significant decline in borrowed volumes, suggesting those on the short side remain pessimistic.