It’s not an immediately intuitive course of action; however, despite the robust trading in the broader markets, investors may want to analyze the most shorted stocks. After all, the recent record-breaking moves in the major indices practically endorse contrarian strategies.
You can make a strong case that Wall Street has gotten well ahead of itself. Currently, we’re riding the longest bull market in history. But even those who have no interest in the finer details of investing can tell you the obvious truth: sentiment moves in cycles. Therefore, this rally will cool at some point, and that’s no bull.
For most folks who aren’t nearing retirement, the best move is to ride out the coming storm. Over the long run, staying in the markets and not panicking has produced robust gains.
Yet some people aren’t built to sit and wait. In this case, short selling provides a channel to profit from the bearishness. And to help mitigate the inherent and dangerous risks involved in this activity, you may consider the names that have attracted substantial pessimism.
With that, here’s a deeper look at some of the most shorted stocks in the markets right now:
Tesla (NASDAQ:TSLA) is a situation that mixes the most shorted stocks with one of the most celebrated. Led by one of the greatest minds of our generation in Elon Musk, TSLA stock skyrocketed a few years ago. But recently, Wall Street has asked tough questions regarding the viability of the company’s electric vehicle business.
At the most recent count, 35% of the float in TSLA stock is held short. Among the big names in the market, only one company features a higher short float. Further, the dollar volume of this short selling amounts to $9.44 billion. In this category, Tesla takes home the dubious top spot.
So why do folks hate TSLA stock so much? Although the underlying company’s EV technology impresses, Wall Street is in the numbers business. According to their latest second quarter of 2019 earnings report, Tesla missed on both the top and bottom line.
But in my opinion, TSLA stock faces pressure from short selling because the overall infrastructure doesn’t support EVs. Instead, we’re in the golden age of fossil-fueled cars. Thus, I see shares as a viable nearer-term candidate for a negative play. Don’t be surprised if TSLA falls below $200.
Under Armour (UA, UAA)
Another publicly traded company in a frustrating dichotomy is Under Armour (NYSE:UA, NYSE:UAA). On the consumer level, Under Armour appeals to a broad base thanks to its stylish athletic apparel. However, that doesn’t necessarily translate to higher prices for UA stock. In fact, the equity is one of the most shorted stocks.
As of mid-July, a little over 21% of the float for UAA stock was held short. Additionally, the dollar amount of the short selling comes out to $1.07 billion.
Since hitting rock bottom near the end of 2017, UA stock has trended very positively. Last year, the sports-apparel maker returned 21% to beleaguered stakeholders. And in the first half of this year, UAA stock gained over 45%.
But if you’re one of the lucky souls to have profited from the resurgence, it’s time to secure those gains. From the latest read, sales in the critical North American market have weakened more than analysts expected. Plus, sports sponsorships are ridiculously expensive and will threaten Under Armour’s earnings picture for years to come.
On the surface, streaming giant iQiyi (NASDAQ:IQ) should decisively outperform the broader markets. After all, this is China’s Netflix (NASDAQ:NFLX). But after an extremely strong start to the year, IQ stock finds itself in an ugly bearish trend channel. Subsequently, iQiyi is also one of the most shorted stocks of 2019.
From the latest data, just under 21% of the float in IQ stock is held short. In terms of dollar volume, we’re talking $1.24 billion in bearish “value.” To put this metric in context, iQiyi generated top-line sales just a hair over $1 billion in Q1.
This segues into the reason why many people are negative on IQ stock. Primarily, I believe it’s because iQiyi is supposedly a growth stock. Fundamentally, though, revenues appear to have peaked since Q2 2018. Therefore, investors need some reason to justify the risk in holding shares.
But even though IQ is among the most shorted stocks, I’d be very careful about gambling on the “dark” side. Strong support exists at the $18 level. Furthermore, a positive Q2 earnings report could blow up your short position in a bad way.
H&R Block (HRB)
I actually like tax-preparation and services company H&R Block (NYSE:HRB). In fact, I recently included HRB stock on my list of services companies to buy. So why are shares now on this list of most shorted stocks? Because not including it would subject me to accusations of perpetuating “fake news.”
Seriously, though, market participants generally have a dim view on HRB stock. On the latest count, over 20% of the float is held short. In addition, the volume of the short selling amounts to $1.15 billion. For perspective, on their quarter ending April 30, 2019, the company generated $2.33 billion.
So why are people heaping pain on HRB stock? Despite taxes being a universal inevitability — the other is death — H&R Block can’t spark momentum. On a year-over-year basis, revenue dipped 2.5%.
But speaking of fake news, the Trump administration made our tax code incredibly complicated, in my humble opinion. Therefore, the longer-term narrative for HRB stock is positive. Still, I don’t begrudge a short-term negative trade as long as you know what you’re doing.
Match Group (MTCH)
In my view, Match Group (NASDAQ:MTCH) represents one of the top services companies you can buy today. Namely, I’m bullish on MTCH stock because the underlying culture has changed dramatically. People just don’t view online dating with the same stigma and ridicule that they used to. Unfortunately, that sentiment alone isn’t enough to take MTCH off the list of most shorted stocks.
In fact, as of mid-July, Match Group leads all other negatively traded securities. Dubiously, 38.5% of the float in MTCH stock is held short. The volume of short selling amounts to $1.5 billion. That’s significant considering that its Q1 2019 revenue totaled $465 million.
Still, why does Wall Street hate MTCH stock so much? I believe it’s a combination of technical and fundamental dynamics. Since its initial public offering in 2015, shares have produced some massive annual returns. But the revenue trend appears to have matured. This suggests MTCH stock will eventually cool down.
However, compared to the most shorted stocks, the bearish play here is risky. Essentially, Match Group owns the major relationship-centric social media brands. Since the search for love is universal, I don’t want to get too cute with MTCH stock.
Zillow Group (Z, ZG)
On the surface, real estate database company Zillow Group (NASDAQ:Z, NASDAQ:ZG) should rank among the best publicly traded companies. And to be fair, Z stock has performed very well this year, gaining over 58% year-to-date. A strong labor market and economy bolsters the bullish case for this organization. So why then is Zillow one of the most shorted stocks this year?
Before I provide my answer, let’s take a look at some key statistics. Nearly 22% of the float in ZG stock is held short. The volume of short selling equals $1.29 billion. For perspective, the company’s Q1 revenue totaled $454 million.
Despite outward appearances, I’m not terribly surprised that the bears are chomping at the bit for Z stock. Sure, the economy and the labor market look great on paper. However, real estate in key markets such as Los Angeles is only available to the affluent and the privileged.
Plus, ZG stock may have a demographic problem. Although millennials represent the largest workforce in America, they’re buying homes later and at lower rates than prior generations. And if we have a recession, this trend will worsen.
Based on these facts, you might have a good shot at profitability in short selling Z stock.
Advanced Micro Devices (AMD)
Over the trailing year, semiconductor firms have become a mixed bag. But Advanced Micro Devices (NASDAQ:AMD) represents the positive end of that mix. With newfound vigor, the company has taken the fight to established industry leaders Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). But despite what appears to be a strong case for AMD stock, the equity is on the list of most shorted stocks.
I know we have a lot of passionate buyers of AMD stock, so don’t kill the messenger. But as of the last count, 12.6% of its float was held short. Compared to the most shorted stocks, that doesn’t sound too bad. However, the volume of short selling amounts to nearly $4 billion. For perspective, AMD generated $1.27 billion in sales for Q1 2019.
But if the underlying company is enjoying a celebrated recovery, why is it compared to the most shorted stocks? Primarily, I believe that the technical enthusiasm has outpaced the broader market fundamentals. Although AMD stock has nearly doubled since the start of this year, we still have a worrying situation with the U.S.-China trade war.
Also, AMD stock has moved higher while the competition remains relatively deflated. Thus, investors are seeking the better deal in the semiconductor space, which is probably not AMD.
Western Union (WU)
Based purely on the print, Western Union (NYSE:WU) presides over a solid business. Money transfers, especially international ones, require specialized acumen. And for conservative investors, WU stock pays a generous dividend with a yield of 3.8%. However, these attributes have not helped shares from falling into the list of most shorted stocks.
According to the most recent data, 12.5% of the float in WU stock is held short. The volume of short selling totals $1.14 billion. These states place Western Union roughly in the middle of the pack compared to the most shorted stocks.
And while the company may have a solid business, I’m not taken aback that the Street has gone negative. For one thing, Western Union’s services are expensive. More critically, new technologies will allow competitors to seriously disrupt WU stock and steal market share.
But my biggest longer-term concern? That would be the blockchain and the resultant cryptocurrencies. Of course, the prices of these digital assets have incurred volatility recently. Still, that doesn’t take away from the fact that the blockchain offers a radical solution to monetary transfers. Therefore, I don’t think this is a bad short sell if you can stomach the risk.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.