Investor Alert: Big Short Activity in These 5 Stocks

Are these stocks poised for a big decline?

| More on:
The Motley Fool

Twice a month, TMX Group (TSX: X) publishes its Top 20 Largest Consolidated Short Positions report, a running tally of the most heavily shorted stocks on the Toronto Stock Exchange.

For regular investors, it provides a rare glimpse into the minds of short-sellers. These are some of the most sophisticated investors on the planet, who sell shares of stocks they don’t own in a bet that the price will drop. A number of academic studies have shown that increased short activity often precedes big declines in stock prices.

That’s why I always pay attention to the names that pop up on this list. The table below details the stocks with the biggest change in short activity in the recently released, mid-July report.

Company Name As of July 15 As of June 30 % Change
Talisman Energy 32,198,050 12,077,862 166.59%
Bank of Nova Scotia 31,238,043 22,486,813 38.92%
Rogers Communications 24,862,639 18,213,282 36.51%
Manulife Financial 24,862,639 36,497,550 -31.88%
Barrick Gold 23,183,753 30,884,769 -24.93%

Source: TMX Group

These are dark days at Talisman Energy (TSX: TLM)(NYSE: TLM). The Canadian energy giant has struggled under the weight of low natural gas prices and a sprawling asset base.

Chief Executive Hal Kvisle has been trying to engineer a turnaround at the troubled firm by selling off unprofitable assets and refocusing the company’s operations around a few core plays. However, obligations to debt holders have impeded its progress.

During the period that encompassed this report, the federal government also announced that it would bar Canada’s major telecom companies from participating in upcoming spectrum auctions. Clearly, some investors are worried that more competition could dampen wireless margins at Rogers (TSX: RCI.B)(NYSE: RCI).

A number of financial companies also showed up in the report this week. Short-sellers have been stepping up their bets against Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) and Toronto Dominion Bank (TSX: TD)(NYSE: TD). Given that these two stocks have rallied significantly over the past two months, valuations are looking stretched.

However, there was some good news in this report. Manulife Financial (TSX: MFC)(NYSE: MFC) is continuing to build its business in Asia’s fast-growing emerging markets, and this earnings boost has sent shares to fresh 52-week highs. Short-sellers are now scrambling to cover their bets as the stock marches higher.

Short-sellers are also scaling down their bets against gold miner Barrick Gold (TSX: ABX)(NYSE: ABX). No doubt this is largely due to higher metal prices. However, there’s growing optimism in investment circles that extensive cost-cutting efforts and asset sales may have finally put a bottom underneath the stock.

To be clear, short positions may only represent one leg of a much larger trade. Short sales don’t always represent outright bearish bets against a stock. However, investors should take note when they see such large swings in activity.

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.

Fool contributor Robert Baillieul has no position in any stocks mentioned.

More on Investing

Senior housing

3 Lesser-Known Reasons to Invest in an RRSP

The RRSP has so many more benefits that investors might be unaware of, and can be used for your benefit…

Read more »


TFSA Blueprint: 4 Canadian Stocks to Secure Your Future

Successful TFSA investing requires four steps and four Canadian stocks to secure your future.

Read more »

gas station, car, and 24-hour store
Energy Stocks

Is it Too Late to Buy Suncor Stock?

Suncor Energy stock has rallied big in the last year, but expect it to move higher as efficiencies keep rolling…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Monthly Money: How to Generate Consistent Tax-Free Passive Income

Adding these two attractive Canadian dividend stocks to your TFSA now could help you earn reliable monthly passive income for…

Read more »

analyze data
Dividend Stocks

3 Magnificent TSX Dividend Stocks to Buy and Hold Forever

Do you want to hold some quality dividend stocks for the decades ahead? Here are three stocks worth holding for…

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Tech Stocks

Up 51% This Year: This Canadian AI Stock is Still Down 65% From Its Highs – Time to Buy?

Copperleaf Technologies (TSX:CLPF) stock has shown positive momentum as the AI stock attempts a recovery. Can shares rise 180% to…

Read more »

Oil pipes in an oil field
Energy Stocks

TSX Energy Sector: Best Stocks to Buy in May 2024

Energy stocks like Suncor are generating massive amounts of cash flows and paying out significant dividends.

Read more »

Dividend Stocks

How Much Will Canadian Utilities Pay in Dividends This Year?

Investors can stabilize their long-term stock portfolio returns by accumulating quality utility stocks on meaningful dips.

Read more »