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The average short position for companies in the S&P/TSX 60 index has steadily edged down over the past two years, from 5.5 per cent to 2 per cent of outstanding shares. But at the company level, short selling remains high for several TSX listings.

Of note is Badger Daylighting Ltd., a pioneer in truck-mounted hydrovac units that use water jets and vacuum systems to excavate earth without damaging pipelines, tunnels and other sensitive infrastructure. It is at the top of IHS Markit's Most Shorted Canadian Stocks table, with 30.2 per cent of its shares loaned out to short-sellers as of mid-October.

Badger and the shorts have been feuding for some time now. In mid-2016, the percentage of shares short climbed as high as 35 per cent. But by early 2017, strong company earnings and steady stock appreciation had pulled that position down to 20 per cent.

Then, first-quarter earnings released in May missed analysts' projections, causing the stock to dive and short sales to spike. Marc Cohodes, the vocal U.S. short-seller who profited from the collapse of Home Capital Group Inc.'s stock in the spring, also revealed he was short Badger.

Over the summer, short-sellers added to their bets despite positive news for shareholders, including a dividend hike, insider buying and better-than-expected second-quarter earnings released in August. The stock has also recouped most of its May plunge, helped along by Badger's expansion into the United States and rising spending on infrastructure by governments.

The bears maintain that Badger's first-mover advantage is waning because low barriers to entry are allowing competition to increase.

Second on the most-shorted list is Montreal-based telecom and media company Quebecor Inc., with 28.8 per cent of shares short. This has been a stable percentage for some time.

Instead of a bearish bet, it may reflect investors hedging Quebecor's convertible bonds. (A holder of the convertible bond puts a hedge in place by selling the company's shares short; since the price of the convertible bonds and company's shares tend to move in the same direction, any losses due to a price decline on the convertible bond can be offset by the gain on the shares sold short.)

Third on the list, with 19.6 per cent of shares short, is Alberta-based Canadian Western Bank. Just a few weeks ago, this percentage was much higher, above 30 per cent.

Short-sellers had expected a decline in lending and increase in loan defaults as low crude-oil prices weighed on the province's economy and housing market. Instead, West Texas intermediate crude rebounded to a current price well above $51 (U.S.) per barrel while worries subsided over Home Capital Group's meltdown, allowing Canadian Western Bank's stock to rally for the past five months.

A short-seller hanging in is Jerome Hass of Lightwater Partner Ltd. "After the Great Recession of 2008-09 started … it took eight more quarters for loan impairments [for Canadian Western Bank] to peak," he said in an interview. "Arguably, the 2015 downturn has hit Western Canada harder and for longer … our view is that the market is still not fully recognizing the long impairment and provision cycle that lies ahead for the bank."

The company with the largest monthly jump (14 per cent) in short position on the Most Shorted Canadian Stocks table is Regina-based AGT Food and Ingredients Inc., a world leader in the purchase and distribution of lentils, peas and other pulses. Founded in 2001, it has expanded rapidly through acquiring ownership of control points in the pulse trade – for example, a railway line that provides bulk transportation within a key pulse-growing area.

Among other things, short-sellers may have been emboldened by the prospect of increased competition: Two companies, Verdient Foods Inc. and Roquette America Inc. recently announced plans to open pulse-processing plants in Saskatchewan and Manitoba. There was also a bumper crop of lentils in India this year, and the politicians appear to be trying to protect local growers from a supply glut by placing trade restrictions and duties on AGT's lentils.

Most shorted Canadian stocks (as of mid-October)

CompanyTickerSector% of Shares ShortChange over Month
Badger Daylighting Ltd.BAD-TCapital Goods 30.2 8%
Quebecor Inc.QBR.B-TMedia 28.8 -1%
Canadian Western BankCWB-TBanks 19.6 -16%
First Majestic Silver Corp.FR-TMaterials 18.8 -3%
AGT Food And Ingredients Inc.AGT-TFood, Bev. & Tobacco 17.5 14%
Peyto Exploration & Dev't Corp.PEY-TEnergy 16.6 11%
Maxar Technologies Ltd.MAXR-TCapital Goods 16.3 -25%
Pretium Resources Inc.PVG-TMaterials 15.7 9%
Boardwalk REITBEI.UN-TReal Estate 15.1 -2%
Ritchie Bros. Auctioneers Inc.RBA-TComm. & Prof. Services 15.0 -13%

Source: IHS Markit

Larry MacDonald is an economist, author and financial writer.