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number cruncher

What are we looking for?

U.S. stocks with plenty of negative investor sentiment. Or more specifically, the U.S. listings most likely to decline in the coming weeks or months, according to short sellers.

More about today's screen

Earlier this week, we looked for stocks listed on the Toronto Stock Exchange with both the largest short interest ratio and the lowest short interest ratio. The metric is calculated by dividing the number of shares sold short on expectation of lower prices by the average daily volume of the stock.

Today, we are looking only at profitable S&P 500 companies with a price-to-earnings multiple of 10 or greater. The screen lists the 20 stocks with the highest short interest ratios, in descending order, and also shows to what extent the short interest has changed over the last month.

What we found

The companies in this screen represent numerous industries that include manufacturing, financial services, health care and consumer non-durables.

At the top of the list is Federated Investors Inc. with a short interest ratio of 15.9, which means it would take short sellers 15.9 days to close out their short positions on the stock based on the average daily trading volumes.

Federated is an asset manager and has high exposure to fixed income products, which means it does better in an environment of rising interest rates. Some in the market appear to be betting that the U.S. Federal Reserve will extend the period of ultra-low rates, which will eat into the company's revenue and profit.

Second is Fastenal Co., which sells industrial and construction supplies. The company reported 23 per cent revenue growth and a strong profit for the last quarter. It also recently announced a 2-for-1 share split. However, short sellers may be betting that rising inflation in China, where the company gets a lot of its materials, will hurt performance.

Commercial printing giant R.R. Donnelley & Sons lands in third spot, with the short interest jumping more than 200 per cent over the last month. That represents the second largest gain on the list, next to the more than 330-per-cent rise in short interest for Express Scripts Inc., which sells pharmacy management services such as retail drug card programs and home delivery pharmacy services.

While First Solar is close to its 52-week low, in general these stocks are trading mid-range or higher.