What are we looking for?
Stocks that investors are most keen to bet against. Sino-Forest Corp. isn't the only company attracting short sellers these days. There are a handful of companies that have a lot of negative sentiment around them.
More about today's screen
The chart lists the stocks on the Toronto Stock Exchange with the largest short interest ratio, which is calculated by dividing shares sold short on expectation of lower prices by the average daily volume of a stock. We are looking only at profitable companies with a price-to-earnings multiple of 10 or greater. In addition, this grouping includes only stocks that have seen an increase in short interest during the last month.
What we found
There is a diverse group of industries represented on this list. Short sellers are focusing on retailers, utilities, energy firms, manufacturers, financial players and mining companies.
Cott Corp. tops the list with a short interest ratio of 52.4, which means it would take short sellers 52.4 days to close out their short positions on the stock based on the average daily trading volumes. Short interest in the non-alcoholic beverage company has risen by a moderate 3.6 per cent over the last month.
Loblaw Cos. Ltd., which has been suffering from lacklustre sales growth and is completing a five-year turnaround project, sits second on the list. FirstSevice Corp. is third. The Toronto-based company provides services in commercial real estate and residential property.
Gamehost Inc., a hotel and gaming company based in Red Deer, Alta., has seen the biggest increase in short seller interest, with short activity rising more than 140 per cent in the last month. Discount retailer Dollarama Inc., which recently reported better-than-expected quarterly results, has also grabbed the attention of short sellers, perhaps because inflation in China may bite into its business.
When we ran a similar screen in February, Cott placed third, with a short interest ratio of 40. Since then the stock has declined by 9 per cent. Rona Inc., third on the February list, has seen its stock fall 21 per cent in the same period. Shares of Stantec Inc., which topped the February ranking but are not part of today's screen, are down 4 per cent.
It's important to note, however, that while high short interest in a stock could be part of a broader "bear attack" against a company, this is far from always the case. In some instances, for example, sophisticated investors use short selling to hedge portfolios or to try to capitalize on different valuations between a company's stock and its convertible bonds or preferred shares.
Tomorrow, we will look at profitable companies on the TSX attracting positive sentiment, with a short interest ratio of less than one.