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

stock analysis

Buy the Dip: 2 Stocks to Buy Today and Hold for the Next 5 Years

These Canadian stocks are trading at discounted valuations, providing an opportunity for buying the dip.

Read more »

bulb idea thinking

Safety in Size? 2 of the Bluest Blue-Chip Stocks I’d Buy Now

TC Energy (TSX:TRP) and another cash cow have huge dividend yields for safe investors.

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »

Question marks in a pile
Dividend Stocks

Where Will Brookfield Infrastructure Partners Stock Be in 5 Years?

Brookfield Infrastructure Partners (TSX:BIP.UN) kicked off 2024 with a bang. Where will it be in five years?

Read more »

TFSA and coins

TFSA Investors: 3 Incredible Stocks for 2024

Are you looking for stocks to buy and hold for years for your TFSA? These three stocks could deliver exceptional…

Read more »

A person looks at data on a screen
Stocks for Beginners

3 Warren Buffett Stocks to Hold Forever

Warren Buffett sold some shares in Apple (NASDAQ:AAPL), and the market had questions.

Read more »

Dividend Stocks

Golden Years Gain: Your CPP Benefits at Age 70

CPP users delaying pension payments until 70 will receive substantial monthly income streams in the golden years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

3 Dividend Stocks You Can Safely Hold for Decades

Top TSX dividend stocks are on sale.

Read more »