In this article, we will discuss the 8 Stocks with Lowest Short Interest to Buy.
A report from S3 Partners revealed that the rally in Chinese stocks as a result of stimulus measures cost traders who were betting against the US-listed shares ~$6.9 billion in mark-to-market losses. Benchmark CSI 300 index saw an increase of more than ~22% over the past month. The Nasdaq Golden Dragon index went up by over ~34% during the same period. Much of these increases were seen off the back of policy-easing measures.
S3 Partners went on to say that, before this market rally, short sellers continued to build their positions profitably in the falling market. However, after the rebound, the short selling in the group slowed. Before China announced the stimulus plans, shorting the Chinese stocks was a popular strategy, with several market players going underweight in the sector.
Short Selling in Q2 2024
S3 Partners reported that short interest in the US/Canada markets went up by $57.9 billion, or 5.1%, to $1.20 trillion in Q2 2024. The increase comprised $73.9 billion of new short selling, which was partially offset by a $16.0 billion fall in the mark-to-market value of shares shorted. During the quarter, the sectors that saw the largest increase in short selling were the IT, Industrials, and Communication Services sectors. On the other hand, the Energy sector was the only sector that saw a decrease in shares shorted (short covering).
Short Sellers Reduced Their Positions in This Sector
S&P Global reported that short sellers decided to pull back their bets against consumer staples stocks on the US exchanges during the summer months. This comes amidst the general increase in overall short interest throughout equities. Recent data suggests that the short interest in the consumer staples sector declined to 3.87% at the end of August from 4.16% at the end of May. The decline in short interest against consumer staples stocks might be due to the decline in inflation.
On the other hand, short interest in the industrial sector went up by 21 bps from the end of May to the end of August, rose 20 basis points in the healthcare sector, and jumped 19 basis points in the real estate sector, as per the company. With the expectations of further rate cuts, market experts opine that the consumer staples sector might see sustained demand. The consumer spending resulted in solid Q2 2024 Gross Domestic Product (GDP) growth of 3% (annualized), approximately double the rate of Q1 growth, as per the US Bank.
After the rate cut in September, market strategists recommended going long on consumer discretionary and consumer staples sectors. This is because these sectors are expected to receive a boost as declining mortgage rates might benefit spending, reported Reuters.
Therefore, with the expectations of lower inflation and interest rates, there can be some revival in consumer confidence. This should result in increased spending on staple goods, which might lead to improved performance in the consumer staple sector. As per Evercore, among the S&P 500 sectors, consumer staples and consumer discretionary have seen the best average performance, with both sectors gaining ~14% a year after the rate cut.
Our Methodology
To list 8 Stocks with Lowest Short Interest to Buy, we used a Finviz screener to extract the list of stocks having the lowest short interest. Next, we narrowed down our list to the following 8 stocks having short interest of less than 2%. Finally, the stocks were ranked in the descending of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Stocks with Lowest Short Interest to Buy
8) Broadcom Inc. (NASDAQ:AVGO)
Short % of Float (as of September 30): 1.58%
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) designs, develops, and supplies semiconductor and infrastructure software solutions.
Broadcom Inc. (NASDAQ:AVGO) has been tagged as a key player in the artificial intelligence (AI) revolution because it continues to leverage its expertise in custom silicon and networking solutions in a bid to capture a significant share of the rapidly expanding market. The company’s focus on AI should act as a primary driver of its growth strategy. Moving forward, its fundamentals are expected to be supported by strong demand for its AI accelerators and Ethernet solutions.
Broadcom Inc. (NASDAQ:AVGO)’s success in AI should continue to be aided by its ability to secure and expand relationships with major tech giants. In AI custom compute, the company is engaged in designing custom accelerators for large consumer-internet AI companies (like Google and Meta), who are developing large AI clusters in order to drive improvements in user engagement and targeted advertising on their consumer media platforms.
Broadcom Inc. (NASDAQ:AVGO)’s capability to quickly develop and bring to production custom solutions for well-established technology companies exhibits technological leadership and agility. Piper Sandler raised its target price on the shares of Broadcom Inc. (NASDAQ:AVGO) from $165.00 to $200.00, giving an “Overweight” rating on 13th June.
ClearBridge Investments, an investment management company, released its third-quarter 2024 investor letter. Here is what the fund said:
“In IT, we bought Broadcom Inc. (NASDAQ:AVGO) as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple. We made room for Broadcom by exiting Lam Research, whose shares we believed priced in a full recovery, while we grew increasingly concerned that China exposure might create an air pocket.”
7) Costco Wholesale Corporation (NASDAQ:COST)
Short % of Float (as of September 30): 1.54%
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) is engaged in the operation of membership warehouses in the US, Puerto Rico, Canada, Mexico, and other countries.
Wall Street analysts believe that Costco Wholesale Corporation (NASDAQ:COST) continues to gain market share throughout various classes of trade, which hints at broadening appeal to consumers beyond its traditional stronghold in consumables. The company’s operational efficiency and pricing power are expected to support it navigate a challenging operating environment.
Costco Wholesale Corporation (NASDAQ:COST)’s e-commerce segment demonstrated significant progress, with improved profitability complementing its brick-and-mortar operations. It continues to expand its digital capabilities, which include partnerships with platforms such as Uber. Such initiatives form part of Costco Wholesale Corporation (NASDAQ:COST)’s broader strategy to enhance its omnichannel presence.
Membership trends should continue to act as a primary growth enabler. Wall Street believes that Costco Wholesale Corporation (NASDAQ:COST) will reinvest the additional revenue from the recent fee hike back in its product values. This should further strengthen its customer loyalty.
The Goldman Sachs Group upped its price target from $876.00 to $995.00, giving a “Buy” rating on 27th September. Parnassus Investments, an investment management company, released a second quarter 2024 investor letter. Here is what the fund said:
“Costco Wholesale Corporation (NASDAQ:COST) posted strong results for the third quarter of fiscal 2024, with a robust increase in net sales and strength in both U.S. and international markets. Bucking the trend of weakening demand for discretionary items that has pressured many other retailers, Costco reported growth in nonfood sales.”
6) PepsiCo, Inc. (NASDAQ:PEP)
Short % of Float (as of September 30): 1.31%
Number of Hedge Fund Holders: 65
PepsiCo, Inc. (NASDAQ:PEP) is engaged in manufacturing, marketing, distributing, and selling various beverages and convenient foods worldwide.
PepsiCo, Inc. (NASDAQ:PEP) has a strong foothold in a highly competitive F&B industry. The company’s diverse product portfolio, including both snacks and beverages, offers a degree of insulation against market fluctuations and changing consumer preferences. Moving forward, the company’s strong brand recognition and strategic market positioning are expected to act as critical tailwinds. Its diverse product range should further strengthen its competitive positioning.
PepsiCo, Inc. (NASDAQ:PEP) can leverage its robust presence in both snacks and beverages in order to create bundled offerings or promotions. This can help increase its overall sales. PepsiCo, Inc. (NASDAQ:PEP)’s broad portfolio enables it to negotiate better terms with suppliers and retailers, resulting in economies of scale. Therefore, its strong research and development capabilities, global market presence, and distribution network should continue to fuel long-term growth.
PepsiCo, Inc. (NASDAQ:PEP) continues to focus on enhancing its core products, investing in promotional efforts, and embracing digitalization in a bid to improve efficiency. The company continues to target long-term growth, stemming from changing snacking patterns, primarily among Gen Z consumers.
As per Wall Street, the shares of PepsiCo, Inc. (NASDAQ:PEP) have an average price target of $184.07.
5) NVIDIA Corporation (NASDAQ:NVDA)
Short % of Float (as of September 30): 1.07%
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) offers graphics and compute and networking solutions.
Marker experts opine that NVIDIA Corporation (NASDAQ:NVDA) continues to dominate the AI chip market space, capitalizing on its robust position in graphics processing units (GPUs) in a bid to capitalize on the growing demand for AI infrastructure. The healthy demand for the company’s Hopper GPU computing platform, together with growth in InfiniBand and Ethernet for AI revenue, should continue to fuel its financial performance over the near term.
NVIDIA Corporation (NASDAQ:NVDA)’s CUDA software platform and system software capabilities are expected to act as primary differentiators. The company continues to focus on expanding its presence in enterprise and edge computing markets. Its AI Foundry and NIMs (NVIDIA Inference Microservices) offerings target simplifying AI rollouts for enterprises, opening up new revenue streams as and when businesses adopt AI technologies.
Despite the competitive pressures, NVIDIA Corporation (NASDAQ:NVDA)’s technological lead and ecosystem advantages should help it maintain market leadership over the next few years. Analysts at Rosenblatt Securities reiterated a “Buy” rating on the shares of the company, issuing a $200.00 target price on 29th August.
Vltava Fund, an investment management company, recently released its Q3 2024 investor letter. Here is what the fund said:
“Over the summer, we devoted a lot of time to studying the AI-related investment wave. This spans a wide range of sectors and our view could be very briefly summarised as follows: The first-tier beneficiaries are primarily companies in the semiconductor sector, NVIDIA Corporation (NASDAQ:NVDA) perhaps the most. That company is benefiting from the huge increase in investment by large technology companies to build enormous data centres. We know who NVIDIA’s customers are. They are companies like Meta, Alphabet, Amazon, and Microsoft. They are investing hundreds of billions of dollars into their AI capabilities. What is not entirely clear, however, is who are and will be the customers of NVIDIA’s customers, and, more importantly, when, and if, they will be able to come up with such huge demand for AI services that the profits from AI will justify and pay for the enormous investments all these companies have been making. The further we move away from the starting point that NVIDIA represents in our more broadly-reaching estimates, the less reliable those estimates are. So far, we know just one thing for sure, and that is that investments in AI capabilities are ongoing and they are huge. They are not only bringing large demand to chipmakers and the semiconductor sector but to some other sectors as well. Indeed, building AI clusters also requires the construction of new semiconductor factories, new energy sources, and all the associated infrastructure. The numbers under consideration are incredibly high. It is possible that over the next decade the construction of AI centres will necessitate a 20% increase in US energy consumption. The investment required will be measured not in the hundreds of billions of dollars, but in an order of magnitude higher. Maybe two orders of magnitude.”
4) The Procter & Gamble Company (NYSE:PG)
Short % of Float (as of September 30): 0.87%
Number of Hedge Fund Holders: 64
The Procter & Gamble Company (NYSE:PG) is engaged in the provision of branded consumer packaged goods worldwide.
The Procter & Gamble Company (NYSE:PG)’s strong brand portfolio and well-diversified business are expected to drive a long-term growth trajectory. Its extensive product portfolio spans across multiple categories, such as beauty, grooming, health care, fabric & home care, among others. This diversification should continue to offer the company stability and resilience against market fluctuations. Innovation should be the key driver of The Procter & Gamble Company (NYSE:PG)’s growth strategy.
The Procter & Gamble Company (NYSE:PG) continues to invest in research and development to bring new and improved products to market. This strong emphasis on innovation aided the company in maintaining its market share momentum and creating opportunities for premium pricing. Additionally, The Procter & Gamble Company (NYSE:PG)’s global presence enables it to tap additional growth opportunities in emerging markets. This can help in offsetting slowdowns in more mature markets.
Its ability to tailor products and marketing strategies to local preferences should be a significant factor in international success. One of the company’s strengths has been its pricing power, which can be leveraged for future growth. In FY 2024, The Procter & Gamble Company (NYSE:PG) saw net sales of $84.0 billion, reflecting a rise of 2% versus the prior year. Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, rose 4%. Increased pricing contributed 4 points of growth to organic sales.
TD Cowen gave a “Buy” rating on the shares of The Procter & Gamble Company (NYSE:PG) and a $189.00 price target on 23rd July.
3) Microsoft Corporation (NASDAQ:MSFT)
Short % of Float (as of September 30): 0.80%
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is engaged in developing and supporting software, services, devices, and solutions worldwide.
Wall Street analysts believe that Microsoft Corporation (NASDAQ:MSFT) continues to leverage its healthy position in cloud computing and artificial intelligence to fuel growth. They are quite optimistic about Microsoft’s Azure cloud platform, with acceleration expected in the latter half of 2024. Also, Microsoft Corporation (NASDAQ:MSFT) has been investing heavily in AI computing infrastructure, primarily in housing clusters of GPUs essential for the growing demand in AI compute. Over the long term, the company’s leading position in AI and extensive portfolio are expected to act as potential tailwinds.
While Microsoft’s Office 365 Commercial should continue to aid its growth trajectory, vendor consolidation and ARPU growth through upgrades are expected to act as primary tailwinds. Microsoft Corporation (NASDAQ:MSFT)’s AI strategy and partnerships are also expected to act as key drivers for future growth. Moreover, Wall Street remains optimistic about partnerships with companies like Elastic, potentially aiding in winning government customers and large enterprise penetration.
Microsoft Corporation (NASDAQ:MSFT)’s AI strategy and partnerships should lead to unique monetization opportunities across products such as Azure and CoPilots. Wells Fargo & Company raised its price objective from $500.00 to $515.00, giving an “Overweight” rating on 31st July.
Generation Investment Management, an investment management firm, released its second quarter 2024 investor letter. Here is what the fund said:
“Generative AI’s hunger for power has increased disproportionately with its intelligence. According to one estimate, OpenAI’s GPT-4 required 50 gigawatt hours (GWh) of electricity to train, much more than the 1.3 GWh needed for GPT-3.3 And then AI requires even more power when it is put to use (so called ‘inference’). Some of the latest trends worry us. Microsoft Corporation (NASDAQ:MSFT) appears to be slipping in its ESG goals, with its greenhouse gas emissions rising again last year, as it invests in becoming a big player in AI. It is struggling in particular to curb its Scope 3 emissions in the capital goods category – nowhere more so than in the activity associated with the construction of data centres: both the embedded carbon in construction materials like steel and cement, as well as the emissions from the manufacturing of hardware components such as semiconductors, servers and racks. Google’s emissions have risen by close to 50% in the past five years.
We feel it is worth dwelling on Microsoft for a few moments, since we suspect you will be hearing a lot more about the relationship between AI and sustainability in the coming months. The bottom line is that we continue to see Microsoft as a sustainability leader. In the case of Scope 2 emissions, the company covers 100% of its electricity use with purchases of renewable energy. Crucially, though, the majority of this green energy is directly sourced via power purchase agreements, which bring new renewable capacity to the grid. Microsoft is also committed to operating 24/7 on renewable power by 2030, a policy that will help bring energy storage onto the grid as well…” (Click here to read the full text)
2) Walmart Inc. (NYSE:WMT)
Short % of Float (as of September 30): 0.72%
Number of Hedge Fund Holders: 95
Walmart Inc. (NYSE:WMT) is engaged in the operation of retail, wholesale, other units, and e-commerce worldwide.
Walmart Inc. (NYSE:WMT) continues to make investments in its omnichannel capabilities, which help in enhancing its e-commerce platform while, at the same time, leveraging its vast store network for services such as curbside pickup and in-home delivery. Also, the company has been expanding its private label offerings, which include the introduction of “bettergoods” at Walmart U.S. and strengthening the “Member’s Mark” brand at Sam’s Club. Such initiatives are expected to improve brand loyalty and drive sales.
Walmart Inc. (NYSE:WMT)’s significant investments in supply chain automation and in-store technology continue to reduce its costs and improve operational efficiency. Also, the company has been focusing on high-margin businesses like Walmart Marketplace, Walmart Connect (advertising), and financial services in a bid to propel profitability.
Walmart Inc. (NYSE:WMT)’s focus on price leadership, enhanced assortment, and convenience via digital and delivery services should continue to act as principal tailwinds. The company’s multi-faceted approach enabled it to attract and retain higher-income customers. This has broadened its appeal throughout demographic segments.
Analysts at Wells Fargo & Company increased their price target on the shares of Walmart Inc. (NYSE:WMT) from $81.00 to $88.00, giving an “Overweight” rating on 23rd September. Market experts opine that the company’s international segment, primarily its investment in Flipkart, offers significant growth opportunities.
1) Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Short % of Float (as of September 30): 0.50%
Number of Hedge Fund Holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is engaged in manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices.
Market experts opine that the company’s strong market position and growth potential are aided by increasing artificial intelligence (AI) chip demand. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has been strengthening its position as a leading player in the semiconductor manufacturing industry. Its advanced manufacturing processes, primarily in leading-edge nodes, resulted in attracting high-profile customers in the mobile and high-performance computing sectors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s strong emphasis on cutting-edge technology placed it well to capitalize on the growing AI trend. Wall Street analysts expect that AI is not only fueling demand in data centers but is also boosting demand in the broader smartphone segment. As a result, this dual-pronged AI-driven growth should act as the primary tailwind for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) over the coming years.
While AI applications continue to drive demand throughout product categories, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s advanced manufacturing nodes, primarily N3 and N5, continue to see full utilization.
Analysts at Susquehanna reissued a “Positive” rating on the shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), issuing a $250.00 price target on 14th August. Diamond Hill Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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