4 Stocks and 1 ETF That Had Soaring Short Interest Ahead of the Election

Stocks with a large short interest are of value to investors as they are indicative of a bearish sentiment towards the stock. Shorting a stock implies the selling of a stock that is not owned by the investor. The objective of selling a stock short is to make a profit when it falls to a lower price. Once the price falls, the short seller can buy the stock at the lower price without having to own the stock. Short interest ratio is the ratio of tradable shares being shorted to shares in the market, or the float. Stocks with a large short ratio can show a sharp up move, as any good news leads to a surge in stock price. The short sellers rush to cover their positions leading to a technical appreciation in the stock price. In the article below, we look at  4 stocks and an ETF which have shown a sharp increase in the short interest just before the elections and how their stocks have performed in recent days. Under the Trump presidency, future jobs should also increase as the spending on infrastructure projects is expected to rise.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

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Bill Barrett Corporation (NYSE:BBG) is an oil and gas E&P that operates in the Rocky Mountain region of the United States. It has two main areas of production –  Denver-Julesburg Basin (DJ Basin) and Uinta Basin. The company has ownership interests in 280 wells and serves as an operator in another 170 wells. This small cap energy stock has a market capitalization of $385 million. The stock saw a massive 111% increase in short interest over the last month with 6.3 days to cover. Out of the 51 million shares of the stock, more than 11.7 shares were sold short. Though the stock has shown a flat performance over the last one year, its price has increased by almost 20% over the last 5 days. Overall, 19 funds tracked by us held close to 27% of the company’s float at the end of June.

Yelp Inc. (NYSE:YELP) is the owner of Yelp.com and the Yelp mobile app, which publishes crowd-sourced reviews about local businesses. The company has a range of communities of contributors across the world that provide information about local businesses in the form of reviews and ratings, tips, photos and videos. The company was founded in 2004 and became publicly listed in 2012. It has 135 million monthly visitors and 95 million reviews in 2016. Besides acting as a classified, it also provides the online reservation service Yelp Reservations and online food delivery service Eat24. The stock saw an 80% increase in short interest before the elections and short as a percentage of the total float amounts to 12%. The stock has seen a flat performance over the last several days, though it has increased by 42% in the last year. Out of the 36 analysts covering Yelp Inc. (NYSE:YELP), 13 have rated it as a ‘Buy’ while 18 analysts have set a ‘Hold’ rating. Approximately $953 million worth of Yelp Inc. (NYSE:YELP)’s shares were held by 45 funds from our database at the end of the second quarter.

Valvoline Inc. (NYSE:VVV)’s stock saw a 39% increase in short interest over the period leading up to the elections. Approximately 28% of the company’s float is currently short, with 7.2 days to cover. Valvoline, whose stock went public at the end of September, recently has posted its first quarterly results as a listed company, as it reported fiscal fourth quarter revenue of $494 million and adjusted EPS of $0.29. While EPS missed the expectations by $0.02, the revenue was slightly higher than the consensus estimate. For the fiscal 2017, Valvoline Inc. (NYSE:VVV) expects sales growth between 3% and 5%, with an EBITDA margin of 24%-25%. Adjusted earnings per share are expected in the range of $1.28 to $1.38.

iShares MSCI Japan ETF (NYSEARCA:EWJ) is a Japanese ETF that tracks the MSCI Japan Index. The main objective of this ETF is to replicate the performance of the Japanese equity market. This ETF saw a 42% increase in its short interest and currently has 2.3 days to cover. The number of shares short is 37.7 million up from 26.7 million shares which were short in the period. Consumer Cyclicals and Financial Services are the top sector holdings of this ETF, with a 19% and 12% allocation, respectively. Some of the top holdings of this fund are Toyota Motors, Mitsubishi UFJ, Softbank, KDDI, Sumitomo Mitstui, Japan Tobacco, Mizuho Financial Group, and Fanuc Corporation. The market value of its assets under management amounts to around $14.1 billion and it provides a dividend yield of 1.45%. The number of funds from our database long EWJ declined by one to nine during the second quarter.

Nutanix Inc. (NASDAQ:NTNX) is a software company that provides enterprise cloud platform services to other corporations. Its platform is designed to run on commodity x86 servers with off-the-shelf central processing units (CPUs), memory and storage media. This stock saw a 97% increase in its short interest and currently more than 69% of its float is short. The total-days-to-cover figure amounts to 1.5. The company is led by Dheeraj Pandey who is the Chairman of the Board and its Chief Executive Officer. About 17 analysts currently cover this stock, out of which nine are rating it as a ‘Buy’.

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