Super Stocks which are shorted

Friday, May 25 2018 by
12

Having been too wedded to dividend hunting and convinced I could outguess the shorters, I first missed and then arrogantly ignored the Value Trap warnings about Carillion, and got burned. I licked my wounds and I am now more strongly focused on the Stockopedia Ranks and have adjusted my portfolios to hold almost entirely winning styles with most of those classified as Super Stocks.

My concern now is that I see that the shorters are building positions in some of my shares classified as "winners", namely Barratt, Berkeley, Halfords, Persimmon and Plus500.

Halfords is a good example. It is still showing as a winner with excellent Quality and Value ranks but because it has tanked over some not really terrible news, the Momentum rank has been slashed and it has flipped from Super Stock to Contrarian. Looking at the trades, almost all of the sells are Automatics which suggests to me that the Momentum investors are heading for the door and perhaps this is a classic over reaction to the news. I read the Halfords report and couldn't see anything really bad. Yes profits were slightly down but credible actions is being taken and it is still a great cash machine servicing a good dividend and capex. As a result, debt is under control and gearing is low. While it isn't a High Flyer, this doesn't look to me like a company on the skids.

My problem is that 2.4% has been shorted over the past couple of days which leads me to believe that there may be something happening to Halfords which I have not recogised.

I rely heavily on the Stockopedia Stock Reports but it looks as though the shorters are using different data or analysis to evaluate these companies. So my question is, how do I find out if there really has been a change which has not yet been picked up by the Stockranks?

Any comments and ideas would be most welcome.


Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Halfords Group plc is a retailer of automotive and cycling products. The Company is also an independent operator in auto repair. It operates in two segments: Halfords Retail, which operates in both the United Kingdom and Republic of Ireland, and Halfords Autocentres, which operates in the United Kingdom. The Halfords Retail segment includes car parts, accessories, consumables and technology. The Halfords Retail segment's product ranges are marketed through a national network of stores and through a multi-channel offer, which combines Website promotion with direct delivery or collection from store. The Halfords Retail segment includes approximately 165,000 product lines that are available online, and over 460 Halfords stores selling motoring and cycling products. The Halfords Autocentres segment provides car service, repair and MOTs to both retail and fleet customers throughout the United Kingdom. The Halfords Autocentres segment has over 300 centers across the United Kingdom. more »

LSE Price
339.8p
Change
0.9%
Mkt Cap (£m)
670.6
P/E (fwd)
11.4
Yield (fwd)
5.4

The Berkeley Group Holdings plc is a holding company. The Company, along with its subsidiaries, is engaged in residential-led, mixed-use property development. Its segments include Residential-led mixed-use development and Other activities. Its brands include Berkeley, which creates medium to large-scale developments in towns, cities and the countryside, encompassing executive homes, mixed use schemes, riverside apartments, refurbished historic buildings and urban loft spaces; St George, which is involved in mixed use sustainable regeneration in London; St James, which handles projects that embrace private residential development, commercial property, recreational and community facilities; St Edward, which offers residentially led developments, and St William. Berkeley First is a division of the Company specializing in student accommodation and mixed use residential development within London and the South East. Berkeley Commercial is its commercial property developer and investor. more »

LSE Price
4220p
Change
1.0%
Mkt Cap (£m)
5,604
P/E (fwd)
11.6
Yield (fwd)
4.6

Barratt Developments PLC is a holding company. The Company is principally engaged in acquiring and developing land, planning, designing and constructing residential property developments and selling the homes, which it builds throughout Britain. The Company operates in two segments: Housebuilding and Commercial developments. Its housebuilding segment operates through approximately six regions and approximately 30 operating divisions delivering over 17,319 homes. Its Commercial developments are delivered by Wilson Bowden developments. It purchases land in targeted locations and designs homes for its customers using standard house designs. Its brands include Barratt Homes, David Wilson Homes and Barratt London. Its Barratt Homes brand focuses on making homes. Its Barratt London brand portfolio offers apartments and penthouses in Westminster to riverside communities in Fulham. Its David Wilson Homes brand offers home design and specification, and focuses on developing family homes. more »

LSE Price
556p
Change
-0.0%
Mkt Cap (£m)
5,632
P/E (fwd)
8.2
Yield (fwd)
7.8



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23 Posts on this Thread show/hide all

matylda 25th May 4 of 23
4

In reply to post #367484

https://shorttracker.co.uk/ should help

Blog: Briefed Up
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Carey Blunt 25th May 5 of 23
1

I would suggest that any shorters are just trying to capitalise on the momentum of those shares which is mostly downwards.
You have to be a brave man to bet against momentum and you have to be prepared to wait.
Personally, if there is any whiff of anything potentially wrong or momentum is strongly downwards I would just get out. If you want to then look for an entry point lower down when you think the trend has reversed then great.

I’m not being critical of you here but do you think that maybe you are ignoring the warnings again like you did with Carillion? Maybe just sit on the sidelines for a bit on Halfords for a while or look for other opportunities. I think some classic investing biases are in play here.

Remember, Investing is a team sport, I hope you get a good result in the end.

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Nick Ray 25th May 6 of 23
3

The QVM history for Halfords (LON:HFD) looks like this (QVM are Red,Green,Blue with Stock Rank the dotted Magenta line):

5b084ed0bd770hfd-qvm.png

As you can see it has consistently high Q and V and SR scores but the price stays within a channel. It pays a healthy dividend but there is little capital growth. It wouldn't surprise me if the chart in five year's time looks pretty similar to this one.

This is a classic example of a case where high Q and V do not automatically imply a capital return in the short to medium term.

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pka 25th May 7 of 23

In reply to post #367454

Hi Mechanical Bull,

You wrote: "I do a bit of shorting myself, but I only target "losing styles"."

Out of interest, how do you do your shorting?

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jjis 26th May 8 of 23
1

In reply to post #367484

You can get a daily update in a spreadsheet direct from the FCA see -

http://www.fca.org.uk/your-fca...

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Mechanical Bull 26th May 9 of 23
14

Hi pka,

I use an IG CFD account to do my shorting.

I have a Stockopedia screen that identifies stocks with losing styles (i.e. sucker stocks, momentum traps, value traps and falling stars). I also filter for those stocks where the price is under the 200 day moving average and the bid spread is less than 300.

I then match this list of candidates to the current list of shortable stocks from an Excel spreadsheet on the IG website: https://www.ig.com/uk/shares. I then take the resulting list of stock codes and load it into a Stockopedia folio that I use as a watchlist.

From this folio, I scan the charts looking for low risk entry points. What I am looking for are stocks which seem to be in a downtrend, where a base has formed and where the price has just started to drop again below the base. I can then make an entry and set a stop just above the base of no more than 7-8%.

My experience is that I actually get stopped out of the majority of my positions. However, my average gain is much more than my average loss and so the strategy has been profitable. My best result this year was Mothercare, where I got a 50% gain in just a couple of weeks.

This is all much more short term and completely different from how I handle most of my long positions. The main reason is that the long-term risk-reward trade off for going short is not as good as for going long - without stops you are risking more than your capital while it is mathematically impssible to "multi-bag". Also, with CFDs you are borrowing money and so you don’t want to be waiting for ages for things to happen. Finally, because you are using leverage your risks are magnified further. For these reasons, you need to be laser focused on managing risk.

In my opinion, this strategy will never be as profitable as going long only and for this reason it is just a side-line covering no more than 25% of my long positions.

However, I think it is worth doing to smooth out my overall returns and to act as a hedge against falling markets. If nothing else, it provides psychological boost during bear markets and can prevent panic. The correction this year was a good test of that. It also generates a cashflow which can be used for the next bull market.

Cheers,

MB

Blog: Mechanical Bull Blog
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pka 26th May 10 of 23

Hi Mechanical Bull,

That's very interesting, thanks.

I'm looking for a way of hedging my portfolio against a major bear market. Does anyone know whether it is possible to short the FTSE All Share index on IG, and if so would that be a good way of hedging a portfolio?

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snickers 28th May 11 of 23
1

In reply to post #367559

How do you get that q v m history under a chart?

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Nick Ray 28th May 13 of 23

In reply to post #367789

How do you get that q v m history under a chart?

I had to collect the data and create the graph myself.
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Carey Blunt 28th May 14 of 23
2

In reply to post #367629

You could buy UK2S or something similar to easily short an index. It’s something the naked trader recommends as an easy lower risk option.

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snickers 28th May 15 of 23

In reply to post #367804

And how the hell do you do that???? Seriously it would be interesting to see how the ranks react to news events. That's what I was wondering about. 

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pka 28th May 16 of 23

In reply to post #367809

Hi Carey Blunt,

Thanks for the suggestion of buying UK2S or a similar short ETF to hedge a portfolio against a bear market.

The Monevator website doesn't like short ETFs because of the way compounding of daily returns works:

http://monevator.com/short-etf-maths/

However the main thing that worries me about short ETFs is whether the providers of the derivative products those ETFs use could be relied on to pay out in the event of a major bear market.

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TangoDoc 29th May 17 of 23
1

All I can imagine is that, for a successful shorting strategy, particularly if you get stopped out frequently, you'd have to keep an eagle eye out, morning noon and night. It could well be more profitable to go out to work!

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davidrtlowe 29th May 18 of 23

Thanks to all for your insights. Just in case I misled anyone, I have no intention of getting into shorting. I understand your logic Mechanical, but I don't have enough knowledge or experience (or gonads!) to tread that dangerous path.

Carey said:
"I’m not being critical of you here but do you think that maybe you are ignoring the warnings again like you did with Carillion? Maybe just sit on the sidelines for a bit on Halfords for a while or look for other opportunities. I think some classic investing biases are in play here."

No offence taken Carey, you are absolutely right to make the comparison but the difference is that in hindsight, I can see that there were clear warnings about Carillion and the stock rank picked this up when the share took its initial dive, and classified it as a value trap. I was too busy farming dividends and naively believed this was really a good company winning big government contracts so it was bound to recover!! 

The problem is that I can'y see any clear warnings about HFD but on looking at Nicks very useful chart (thank you Nick) it is clear that Quality took a hit last summer, but the share price recovered. Now with a Q Rank of 66, Quality appears to be deteriorating again. Perhaps that is enough for the shorters to take a punt.

I have decided to keep watch for a week or so and be prepared to lick my wounds and run for cover if there is no sign of a recovery.

Thanks again for your comments.

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Julian Rowe 1st Jun 19 of 23

What evidence is there of shorting, per se, as opposed to the possibility that (international) institutions are merely pulling investment out of these UK stocks and just maybe accelerating their activity?

BDEV up today almost 4% on JPMorgan analyst rerating to 'overweight' and closing up 2.7%on the day. "JP Morgan analyst Emily Biddulph updates her ratings for British housebuilders, with Barratt  BDEV.L  getting an upgrade to "overweight" for pulling back from central London
developments and improving its margins".

I hold the stock....but have fared much better with CSP. https://www.stockopedia.com/compare/?tickers=LON:BDEV,LON:CSP

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davidrtlowe 1st Jun 20 of 23

Hi Julian, fortunately we don't have to guess when a stock is being shorted. The Financial Conduct Authority publish a daily list of shorted stocks showing the Date of the Position, the Position Holder and the Net Short percentage. See < https://www.fca.org.uk/markets/short-selling/notification-and-disclosure-net-short-positions >
and download the spreadsheet < public short positions disclosed to us - daily update >.

If you download the latest version you will see that Henderson took a short position on BDEV in April. Interestingly, CSP is not shorted while similar "super stocks" PSN and BKG and other builders are, some of them quite recently.

This is exactly the point of my initial post. These guys are betting millions that these "super stocks" are going to tank and I was hoping someone could point to the sort of data that they may be using which causes them to come to a different conclusion to the Stock Rank.

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DaviStoVest 2nd Jun 21 of 23

Are the risks in shorting really so much greater than the risk in going long on a stock? Yes, in theory the scope for upwards movement in a price is unbounded, while zero sets the downside floor but that will probably not be an issue most of the time. You can lose your shirt (maybe your house) by borrowing excessively to buy shares in just the same way that you can by over-borrowing shares to buy money. In both cases the risk is magnified by the fact that you may not be able to unwind your position. A significant volume of shares may be almost impossible to sell in a rapidly falling market just as they may be almost impossible to buy in a rapidly rising one.

The risks entailed in shorting a stock are mainly those of getting into an over-leveraged position. The same goes for taking a long position on a stock. Subject to avoiding becoming over-extended, shorting a stock you expect to fall in value is no less valid a way of backing your judgement than is borrowing to buy a stock you expect to rise in value.

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rfenner 6th Jun 22 of 23

In reply to post #369169

There is no 'hidden' data that the shorts are using to cause them to come to a different conclusion to the stock rank - they are just looking at all the data currently available and interpreting it a different way given their experiences and thoughts on future, not necessarily the past.

On Halfords specifically, I shopped in one yesterday and it wasn't exactly a clean, swift, delightful shopping experience. I know this is personal opinion and you don't need that to be successful (e.g. sports direct), but I thought about them as a stock whilst waiting in the queue having owned stock about 5-6 years ago and it wasn't an experience that I could hugely get behind and own stock in.

One other quick thought - You seem quite over-reliant to the housing stocks by holding three of them, I'd be looking to diversify a little.

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davidrtlowe 6th Jun 23 of 23
1

Hi rfenner, I wasn't suggesting that there is hidden data but I think you may have hit the nail on the head. The Stock Ranks are a backward view of shares, albeit over a recent timescale, whereas the shorters are by definition taking a forward view. If they were just using the same data that is used to calculate the stock ranks then they must be taking a different view on the importance of Quality, Value and Momentum or on how to evaluate these factors. Personally I doubt that they are just applying different algorithms to the same data. I think that they must have some forward looking information which may be available to all but is not built into the stock ranks. It is this information that I was hoping to identify to help me take a better forward view of my investments. (The dark view is of course that a shorter may have insider information which gives them better odds on these bets! But they wouldn't do that, would they!!))

I think your inclusion of a view about the Halfords' stores is very relevant. The more we know about the companies we invest in, the better chance we have of understanding how they will perform in an ever changing market. Personally my experience of Halfords is quite different to yours. I find our local store to be clean, modern, well stocked, very helpful staff and good value but your experience does show there is room for improvement.

Once again, I completely agree with your comment about diversification. I actually hold just over 30 shares in the ISA, SIPP and Dealing accounts that I manage for myself and my wife. These are spread over 11 sectors plus some fixed income and cash. Actually house building is currently 12% of total value because it has done well recently. It is a bit overweight and I shall be re-balancing soon.

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