The 3 Largest Short Positions on the TSX

Check in to see the top three companies that investors are betting against.

| More on:
The Motley Fool

Twice a month the Toronto Stock Exchange publishes the 20 largest short positions in the Canadian market.

Before jumping into the list, it’s important to realize that a short position is not always used as an outright bearish bet on a specific name.  Short positions are also used to implement what’s known as a “pair” trade (aka market neutral strategy).

This involves an investor taking a short position in one stock and offsetting it with a long position in a related company.  This type of trade pays off if the long position goes up more, or down less, than the short position and is primarily implemented to reduce market risk in the portfolio.  It does not necessarily mean the investor is absolutely negative on the stock that is sold short.  Just relatively negative.

With that tid bit in mind, these three companies were at the top of the TSX list at the end of February:

Manulife Financial (TSX:MFC,NYSE:MFC)

Topping the list was the financial services giant Manulife.  From the middle to the end of the month, the outstanding short position moved from 52.5 million shares to 77 million, a net change of 24.5 million shares.  Manulife shares have had a strong start to 2013, moving ahead by 14.2% vs. the S&P/TSX Composite advance of 3.0%.  Broad strength in global equity markets as well as a lift in bond yields have contributed to Manulife’s climb.  If these variables continue on their current path, Manulife’s shares can be expected to continue on their current path as well, thus inflicting some pain on the company’s naysayers.

Lundin Mining (TSX:LUN)

Lundin’s short position stood at 68 million shares at the end of February, up from 66 million in the middle of the month.  The company is a diversified miner of base metals with operations in Portugal, Sweden, Spain and Ireland that produce copper, zinc, lead and nickel.  Like most resource companies, Lundin shares have been under pressure in 2013, sinking by close to 6% year to date.  According to Capital IQ, the consensus recommendation for Lundin is “outperform”.  “Outperform” what you ask?  Those who’ve taken a bearish stance on the name hope the answer is “nothing”.

Bombardier (TSX:BBD.B)

Bombardier is one of the most liquid stocks on the Canadian exchange and therefore a relatively easy name to short.  The company’s results are tough to predict as demonstrated by the most recent release, and this can result in large swings in the share price.  On top of this, Bombardier has a significant amount of financial risk embedded within it.  Large outstanding debt and a sizeable pension deficit could leave Bombardier struggling to keep the lights on should the global economy ever fall back into a funk.  Exactly the outcome many shorts are hoping for.

The Foolish Bottom Line

The paired trade angle explained in the opening is a legitimate reason for the appearance of two of these names.  Many of the outstanding shorts on Manulife and Lundin are probably paired with offsetting longs in peers as opposed to outright bearish bets against the companies.  Given Bombardier’s financial risk, the same cannot be said for this maker of planes and trains with any degree of certainty.  The company’s liquidity and puny dividend make it an easy one for short sellers to bet against.

We Fools believe in the power of dividends and have assembled a collection of 13 high yielding names that you can add to your portfolio right now.  These are names that you are unlikely to ever find on a “most shorted” list.  Simply click here and we’ll deliver this special report to you, absolutely free!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned in this report at this time.  The Motley Fool has no positions in the stocks mentioned above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

money cash dividends
Dividend Stocks

2 TSX Dividend Stocks Paying Big Income in a Bearish Market

Despite a pullback in the market, there are still plenty of dividend stocks paying big income to buy. Here’s a…

Read more »

Paper airplanes flying on blue sky with form of growing graph

Here’s Why Smart Investors Are Buying Bombardier Stock Hand Over Fist

Bombardier stock jumped 16% in a week amid a bearish market. What caused investors to buy this stock hand over…

Read more »

data analyze research

My 3 Top TSX Portfolio Holdings Going Into April 2023

Are you looking for TSX stocks to add to your portfolio in April 2023? Here are my three top holdings!

Read more »

consider the options
Dividend Stocks

Better Buy for Dividends – Enbridge or BCE Stock?

Given the favourable market conditions, higher dividend yield, and cheaper valuation, I am more bullish on Enbridge.

Read more »

Dividend Stocks

3 of the Best Canadian REITs to Buy While They’re Still Undervalued

These three Canadian REITs have attractive growth potential and are trading undervalued, making them some of the best to buy…

Read more »

Investor wonders if it's safe to buy stocks now
Bank Stocks

Better Bank Buy: Bank of Montreal or Bank of Nova Scotia?

Bank of Montreal and Bank of Nova Scotia trade near 12-month lows. Are these bank stocks oversold?

Read more »

Target. Stand out from the crowd

3 TSX Stocks to Buy in the Current Market Dip

The market dip from the U.S. banking crisis has created an opportunity to buy three fundamentally strong stocks before they…

Read more »

stock market
Metals and Mining Stocks

2 TSX Mining Stocks to Buy as Gold Prices Surge Past $2,000

Bullish on gold? Investing in quality mining and royalty stocks such as Barrick Gold is a solid bet in 2023.

Read more »