Buy Hold Sell: 4 big shorts
The most-shorted stocks on the ASX have long been a hunting ground for investors and traders alike. Whether you're looking for potential "short squeeze" rallies, oversold contrarian gems, or stocks to sell or short for yourself, stocks with a high short interest can provide bountiful ideas for further research. The four stocks discussed in today’s episode have an average of nearly 9% of their shares sold short; so are these stocks destined for further downgrades, or could there be a short squeeze in their future? Jeremy Hook from TMS Capital asks Jun Bei Liu from Tribeca, and Sam Granger from Totus Capital for their take in this week’s episode of Buy Hold Sell, including one stock that both guests labelled “untouchable”.
Jeremy Hook: Welcome to Buy, Hold, Sell. I'm Jeremy Hook from TMS Capital. With me on the panel today is Jun Bei Liu from Tribeca and Sam Granger from Totus Capital and we're looking today at the most shorted stocks on the market. They're stocks that people don't think are good value or quality, but you can make money on either direction with them. Jun Bei let's look at the first one. Bingo Industries, downgrade in February. It's been hit and it's shorted. Buy, hold, sell?
Jun Bei Liu: It's definitely a sell for me. The company is facing enormous amount of earnings risk at the moment with the building cycle falling off. They've got an earnings hole to plug for the next year and they went out and bought this a Dial-A-Dump business and you know that will be okay for some time, but then you've got the Queensland levy going up, so enormous amount of earnings risks heading into 2020.
Jeremy Hook: Okay. Now Sam, 11% shorted I believe, Bingo Industries. Buy, hold, sell?
Sam Granger: It's a hold for us. Bingo, people love that recycling thematic. We can understand their bullishness around that. We've got concerns on a more micro level in terms of the cash generation, which isn't there for us. And secondly, we think the amount of acquisitions they've made makes it very difficult to work out the organic growth. And we can't reconcile our numbers to their numbers in the presentation. So, for us it's a hold.
Jeremy Hook: Reason to be careful. Yeah. Now Blackmore's had a terrible time of things. Some movement in the executive ranks and chairman, buy, hold, sell?
Sam Granger: Yeah, that's a hold as well for us. We think Blackmores is fundamentally a good business with an opportunity in Asia long-term. We're surprised how well the multiples held up given the management turnover and given some of the operational issues that have occurred there. So, for us it's a hold.
Jeremy Hook: Okay, great and for you, Jun Bei? What do you think? Buy, hold, sell?
Jun Bei Liu: Oh, it's a sell. The reason the share price held up is because there's not enough lending ability to short the stock. The earning has fallen enormously and then this company is stuck with excess inventory. Even discounting couldn't move it out and the Chinese market essentially just moved on from their product because they haven't innovated. And have they got a CEO? Perhaps just not even warming the seat yet. So, it's going through a very challenging period. Eventually when that multiple does de-rate down, it's a worthy business to look at.
Jeremy Hook: It's on a high multiple, but our next stock is not and yet it's been absolutely carded. IOOF, the royal commission, probably its own doings. They're down a long way. Buy, hold, sell?
Jun Bei Liu: Oh, it's a sell. It's untouchable. This stock has just too much earnings risk, a fee pressure and then the acquisition of the ANZ business is looking much, much shakier now. So, it's very hard to even ascertain what the earnings might be.
Jeremy Hook: Okay. Sam, I love the movie, The Untouchables, but is IOOF the same as Jun Bei finds it?
Sam Granger: Yeah, I agree with Jun Bei on that one. They came out at the last result and said they had to update the market at some point in the future about what the provision for remediation costs would be in client refunds. We haven't seen that update yet and for us it's untouchable until then.
Jeremy Hook: Okay. Now tell me another one that might be in the same camp, one of yours that you've looked at and they just would sell it all costs.
Sam Granger: Yeah, so Domino's still has this high short interest and we think justifiably so. We think structurally that market has changed, it's much more competitive in the takeaway food and delivery food space now than it was five years ago. We think they are over earning at the expense of their franchisees and the accounting is very aggressive on a number of fronts. So, Domino's still a short for us.
Jeremy Hook: Okay, thanks for that Sam. Jun Bei, pizza in your way of thinking as well?
Jun Bei Liu: Oh absolutely. I think it's definitely a short, Domino’s, for me. High short interest, but it's going lower because domestically earning is, it's over earning exactly as previously mentioned. And then internationally, it's not delivering in Europe, which we have heard from its peers, things are doing not so great and Japan is doing okay, but it's a low-quality market. What multiple do you pay for their market? Three days can make an enormous amount of difference. So high quality earnings markets are not doing as well, so earnings still need to come down before you can invest in it.
Jeremy Hook: Okay we asked both our panels for their favourite short and both came up with Domino's. It's definitely the big short.
4 stocks mentioned
2 contributors mentioned
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.