What are we looking for?
Stocks that are attracting a lot of pessimism. More specifically, the stocks drawing the biggest bets from investors that their prices will decline in the coming weeks or months.
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 focusing only on profitable companies that have a price-to-earnings ratio of 10 or greater. In addition, the screen shows to what extent the short interest has changed over the last month, and we have filtered the search by listing only the stocks that have seen an increase in short interest during that period.
What we found
At the top of the list is Stantec Inc., an engineering design and consulting firm with headquarters in Edmonton. Many investors appear to be betting that the company will feel some pain as federal stimulus spending dries up and that private spending on infrastructure will prove insufficient to compensate for reduced government spending. The short interest is extremely high on this stock. At current levels it would take short sellers 61.7 days to close out their short positions based on the average daily trading volume.
Home improvement retailer Rona Inc. and soft drink maker Cott Corp. land second and third on the list. Rona and some of its competitors have been struggling more than other retailers following the end of the home renovation tax credit last year and the introduction of a new sales tax in Ontario and British Columbia. Cott, meanwhile, is facing the challenge of higher commodity costs. Last month, Barclays PLC downgraded the stock, saying it had become fully valued and warning that the company has limited pricing power.
Tomorrow, we will take a look at some of the larger, profitable companies listed on the TSX drawing positive sentiment, with a short interest ratio of less than one.