Short selling lets investors profit from a fall in a stock price by selling first then buying after it has fallen. So a bearish consensus can lead to a big short position building in hope of a lower price. In this special episode Matthew Kidman from Centennial Asset Management hosts Charlie Aitken from AIM Funds and Ben Mcgarry from Totus Capital, to discuss five of the most heavily shorted stocks on the market: JB Hifi, Domino’s, Syrah, Myer, and Harvey Norman. Both these Managers have expertise in this highly specialised area, so tune in for their views because as Matthew concludes: “It's never easy being short, but you should see how hard it is being short in financial markets”...
JB Hifi (ASX:JBH)
Ben McGarry: It's a hold actually. It's best in class. Really well operated business. We think that they're going to face some head winds as housing slows. The rise of offshore retailers like Amazon et cetera is going to be a headwind in places like Nebraska where the Nebraska furniture mart uses electronics as a loss leader for the rest of their business. That's going to be a headwind for JB Hi Fi, but I think it's a hold for us.
Charlie Aitken: I'm not really worried about Amazon for JB Hi Fi, I worry about ‘peak apartment’ in Australia and Peak White Goods. I think the purchase of the good guys in through time will be one of the worst timed purchases in corporate history. I think that the stocks not expensive right now on spot numbers and the positioning's been very, very short so it could go a little bit higher, but I'd be using that as a chance to sell it. I think it's a sell. I think that anything that really provides white goods to the east coast of Australia, I'm not particularly interested in.
Domino’s Pizzas (ASX:DMP)
Charlie Aitken: That one's tricky. I think at the moment it's probably a weak hold. I think it could probably squeeze higher, but I think the long term thematics I am cautious on. I think the stock is expensive. I think the growth rate implied in the stock is too high through time and I think the competition will increase as well from things like Uber Eats and everything that can deliver to your home. I think with all these big shorts they can squeeze a bit higher, but I think it's giving you a chance to sell. I'm a seller on that a little bit higher than here.
Ben McGarry: It's a sell for us. Domino’s actually isn't in the business of selling of pizzas, it's in the business of selling franchises and the franchisees are really struggling. At the moment, you can see that in the loans, the support the company is having to give to those franchisees, the loans receivable from franchisees is increasing in the accounts. They're actually not, they're finding it hard to find new franchisees to buy into a Dominoes here. Don Mayes, a very smart guy, excellent salesmen and he's selling his shares, so are we.
Syrah Resources (ASX:SYR)
Ben McGarry: It's a sell for us. They downgraded their expectations for breakeven just last month. They're a little opaque in how they report their sales. They capitalise their sales into their capital costs, which means you can't break out the selling price or the volumes. We think that there's a good chance they'll need money again, so it's a sell for us.
Myer Holdings (ASX:MYR)
Charlie Aitken: I'll be a sell on that too. I think the structural decline in department stores is an ongoing event. I think the generation younger than us won't visit a department store and I think the price, this is where Amazon really does come into it I think. Once people get used to Amazon and the 24 hour delivery et cetera, et cetera, I think that the department store model is structurally in decline. I'm not interested in that one. I think again, look it's come off a low base, it was heavily shorted, it was reasonably cheap at one stage. You know, you find all these stocks that have structural challenges, have these sort of death row moments where you think they're not dead, oh they're not dead, but I think in the long term I can't see that being a long term growth stock. I'm not interested.
Ben McGarry: I think it's a hold. It's too hard for me on the short side with 99.8 days short interest, I looked it up this morning, that is people are on to it, the shorts. It’s a dangerous one. They have fixed the balance sheet, I think there is a good chance they'll lose money at the next result, but it's too hard on the short side, so I'll hold.
Harvey Norman (ASX:HVN)
Ben McGarry: Gerry hates shorters, so I'll say sell rather than short, but he's exposed to the housing slow down. Their accounts are on the opaque side, the stock has rallied a little in the last few weeks on these, not as bad as feared retail results, so for me it's a sell here.
Charlie Aitken: It's all right, he's allowed to have an opinion. He's a successful man. Everyone can have a view. I'm sort of half hearted on Harvey Norman. I think there is a value to the underlying property underneath it all, so that's not just an operating lease like some of these other retailers. I personally think he faces the same challenges as JB Hi Fi from Amazon and everyone on the East coast slowdown. I think there's reasonable valuation support here so I'm sort of a weak hold on that one.
More Charlie please
A lot of the companies discussed here aren’t good businesses to begin with. Maybe we can do a take #2 with names like Afterpay, Wisetech and Ramsay.
I agree with SR V
The title is "Big Shorts". They are shorted for a reason. Afterpay etc are on the other BSH
Thanks for the suggestion SR V - the selection of stocks came from the 'most-shorted' list as per the ASX. We can certainly look at incorporating those stocks into future episodes.
JB Hi Fi and Dominos not good businesses ? come on......