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Home Capital Group Inc. (HCG-T) is again under attack by former U.S. hedge-fund manger and noted short seller Marc Cohodes, even though the mortgage lender is in the final stages of a takeover bid by Smith Financial Corp.

In May, Mr. Cohodes tweeted out several times to journalists, Canadian regulators and the public, urging them to reject the merger because he believes the acquisition is bad for Canada. In one of his tweets, he writes: “The acquisition will blow a hole in the Arctic Mexican Financial system.”

For the uninitiated, Mr. Cohodes now refers to Canada as “Arctic Mexico” (following his attempt to short Home Capital years ago). But if Home Capital is destined to implode, would it be any worse if it happen as a private entity? Not that an implosion would necessarily occur under Smith Financial’s owner, Steve Smith, given the resources at his disposal: decades of experience in the sector, access to financing and personal wealth (said to be a billionaire).

Shopify Inc. (SHOP-T) is also back in short sellers’ sights again. The company’s short position as of May 24 was $747.9-million higher than 30 days ago, which was the second largest increase in Canada.

This was quite a reversal from last month when the short position dropped (by $144.6-million). As speculated in last month’s column, the decline presaged good news in the May 4 release of company’s first quarter financial report (stock rallied 32-per-cent rally in two days after the release).

But the short sellers are hanging in this month and letting their risk exposure increase with the price gain. Valuation has likely again become a concern following the price run-up.

Largest one-month increases in short positions (as of May 24)

COMPANY 1-MONTH CHANGE ($ millions)% OF FLOAT SOLD SHORT
Enbridge IncENB-T$838.65.5%
Shopify IncSHOP-T$747.93.5%
Agnico Eagle MinesAEM-T$608.64.7%
Manulife FinancialMFC-T$363.25.0%
Suncor EnergySU-T$254.43.4%
Bank of MontrealBMO-T$253.24.4%
Tourmaline Oil CorpTOU-T$251.25.8%
Emera IncEMA-T$233.96.5%
ishs S&P/Tsx 60 EtfXIU-T$199.724.6%
Sun Life FinSLF-T$113.72.8%
Brookfield InfrastructureBIPC-T$96.84.9%
Pembina Pipeline CorpPPL-T$81.15.7%
Open Text CorpOTEX-T$62.94.9%
CGI IncGIB-A-T$61.41.4%
Element Fleet Management CorpEFN-T$60.65.0%
Greatwest LifecoGWO-T$59.88.6%
Dollarama IncDOL-T$49.31.9%
Prairiesky Royalty LtdPSK-T$46.44.5%
Algonquin Power Utilities CorpAQN-T$43.57.1%
Magna IntlMG-T$40.63.1%

Source: S3 Partners

Largest one-month decreases in short positions (May 24)

COMPANY 1-MONTH CHANGE ($ millions)% OF FLOAT SOLD SHORT
Toronto-Dominion BankTD-T-$1,677.94.0%
TC Energy CorpTRP-T-$745.77.0%
Bank of Nova ScotiaBNS-T-$743.64.9%
Power Corp CanadaPOW-T-$533.03.4%
Barrick Gold CorpABX-T-$402.73.3%
Cenovus EnergyCVE-T-$352.64.6%
Royal Bank of CanadaRY-T-$352.22.1%
Canadian Pacific Kansas CityCP-T-$325.91.8%
Canadian Natural ResourcesCNQ-T-$302.53.3%
Pan American SilverPAAS-T-$294.51.1%
Teck Resources Ltd BTECK-B-T-$226.53.6%
Canadian Natl RailwayCNR-T-$182.81.6%
Imperial Oil LtdIMO-T-$182.86.1%
Restaurant Brands IntlQSR-T-$168.43.6%
B2gold CorpBTO-T-$156.71.1%
Rogers Comm BRCI,B-T-$102.92.6%
Lululemon AthleticaLULU-Q-$100.52.8%
Frontera Energy CorpFEC-T-$93.20.5%
Ivanhoe Mines LtdIVN-T-$87.55.8%
Telus CorpT-T-$85.35.0%

Source: S3 Partners

As for companies with the highest percentage of float short, Canada Goose Holdings Inc. (GOOS-T) remains the leader, rising to 36.5 per cent in May from 32.4 per cent in April. One possible explanation for the large short position, at least in part, could be concerns over the company’s diversification into China at a time when commercial relations with North America are deteriorating.

20 most shorted companies by percentage of float (May 24)

COMPANY% OF FLOAT SOLD SHORT (May 23)
Canada Goose HldgsGOOS-T36.5%
iShares S&P/TSX 60 ETFXIU-T24.6%
iShares S&P/TSX Utilities ETFXUT-T23.4%
CI Galaxy Bitcoin ETFBTCX-B-T21.7%
Bausch Lomb CorpBLCO-T19.2%
Energy Fuels IncEFR-T18.7%
Tucows IncTC-T16.5%
Aurora Cannabis IncACB-T16.0%
Canopy Growth CorpWEED-T15.7%
Ballard Power SystemsBLDP-T15.6%
Purpose Bitcoin ETFBTCC-B-T14.5%
Peyto Explor & Dev CorpPEY-T13.8%
AbCellera Biologics IncABCL-Q13.7%
Dream Office REITD-UN-T13.1%
Li-Cycle Holdings CorpLICY-N13.1%
Briacell Therapeutics CorpBCT-T12.9%
Aurinia Pharmaceuticals IncAUPH-Q12.7%
Home Capital Group IncHCG-T12.3%
Birchcliff Energy LtdBIR-T12.3%
Lithium Americas CorpLAC-T12.3%

Source: S3 Partners

The CI Galaxy Bitcoin ETF (BTCX.B-T) also had a noteworthy run-up to 21.7 per cent from 18.2 per cent in April and 13.2 per cent in March. Could more adverse news be on the horizon for cryptocurrencies?

Several other companies had increases in their percentages for May, but they were not substantial. One company, Lithium Americas Corp. (LAC-T), had a significant drop to 12.3 per cent from 16.8 per cent.

Four of the 20 most shorted securities by percentage of float had high costs to borrow shares: Aurora Cannabis Inc. (10.4 per cent), Canopy Growth Corp. (18.6 per cent), Purpose Bitcoin (13.6 per cent) and Briacell Therapeutics Corp. (36.6 per cent). High borrowing costs provide a further indication of bearish sentiment but also signal an increased risk of a short squeeze.

Companies with a high days-to-cover ratio are also at more risk of a short squeeze. In May, there were three cases: Peyto Exploration & Development Corp. (395 days), Dream Office REIT (1,805 days) and Birchcliff Energy Ltd (176 days).

Not all sell-side analysts have a tendency toward bullish sentiment. As we approach the third anniversary of the collapse of Wirecard following accusations of irregularities by short sellers and some media outlets, such as the Financial Times of London, it’s worth pointing out that three of the two-dozen analysts covering the company, had sell recommendations out just before the insolvency. One of the three, Neil Campling of Mirabaud Securities, had even issued his sell recommendation a year ahead, with price target of zero.

In Canada, the analysts at Veritas Investment Research have a reputation for independent investment research. In recent weeks, they have issued several sell or reduce recommendations (Note: some of the advice may have since been revised).

Sell/reduce advice from Veritas Investments

COMPANY ANALYSIS
Shopify  SHOP-TValuation high at 10x sales
CN Rail CN-TDeclining freight volumes
Barrick Gold  ABX-TIncreased cost per ounce on lower gold volumes
Franco-Nevada  FNVLower gold production, weak iron ore prices
Dream Office REIT  D-UN-TInterest rates, lower utilization of office portfolio
Brookfield Infrastructure  BIP-UN-TSales to related party
First Capital REIT  FCR-UN-TVulnerable to current interest rates
Waste Connections WCN-THigher costs due to inflation
GFL Environmental  GFL-TLower estimate for EBITDA
Newmont NGL-THigher production costs due to higher labor costs
Canadian Utilities CU-TFully valued

Methodological notes:

1) Some short positions may reflect, in part or whole, hedging/arbitrage positions – so they are not entirely bearish bets; if bearish sentiment is extreme, it can sometimes trigger a short squeeze that sends the stock price higher.

2) Short positions in inter-listed stocks were summed across exchanges in Canadian dollars.

3) When an investor purchases stock that was sold by a short seller, it creates a synthetic long position; if these long positions are not included in the float count, the percentage-of-float-short metric can be overstated – however, most of the time, the magnitude is not significant.

4) The percentage of float short for ETFs is impacted by the mechanism for creating/redeeming units, which results in almost daily changes in the number of units issued. The percentage of float short for ETFs may thus be more volatile than for stocks.

Larry MacDonald can also be found at Investing Journey.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/04/24 3:59pm EDT.

SymbolName% changeLast
SHOP-T
Shopify Inc
+0.74%95.62
GOOS-T
Canada Goose Holdings Inc
+0.13%15.5
BTCX-B-T
CI Galaxy Bitcoin ETF
-3.2%12.42
LAC-T
Lithium Americas Corp
+2.35%9.16
ACB-T
Aurora Cannabis Inc
-1.59%8.04
WEED-T
Canopy Growth Corp
-3.57%8.91
BTCC-B-T
Purpose Bitcoin ETF [Cad ETF Non-Currenc
-3.23%11.99
BCT-T
Briacell Therapeutics Corp
-5.11%2.97
D-UN-T
Dream Office REIT
-0.23%17.41
BIR-T
Birchcliff Energy Ltd
+4.51%5.56

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