We recently published a list of 10 Best Big-Name Stocks to Buy Right Now According to Short Sellers. In this article, we are going to take a look at where Accenture plc (NYSE:ACN) stands against the other big name stocks.
In early April 2024, Goldman Sachs Inc.’s data revealed that short selling on individual US-listed stocks was at the highest level in 6 months, and the most targeted sectors were technology, telecom, and media. This increase in short positions was seen after the significant ~9% advance seen in 1Q 2024 for the S&P 500. As per the data, some hedge funds that were using long-short equity strategies have started to fight the rally.
During extreme market volatility, short selling has become pronounced and has drawn significant interest from institutional and retail investors. It has prompted regulatory intervention as new reporting requirements have been issued by the SEC to offer transparency and ensure the availability of short position data.
Recent Trends in Short Selling
In the 2Q 2024, the US and Canadian markets saw an increase of ~$58 billion in short interest or a rise of 5.1% from the previous quarter.
Recently, S3 Partners, a renowned tracker of short-interest data, reported that the sectors that saw the largest increases in short exposure in 2Q 2024 included information technology (a rise of $49.3 billion), communication services (at $11.2 billion), and utilities (a rise of $3.7 billion) from the previous quarter. The sectors that saw the largest decrease in short exposure were the energy and financial sectors, down $12.3 billion and $1.6 billion, respectively.
Earlier in 2024, a significant surge in the leading AI giant resulted in losses of ~$3 billion for the short sellers. Some market experts even described this as an “AI-generated nightmare.”
In global equities, short interest climbed during July 2024, with strong increases seen throughout the Automobile (+13bps), REITs (+11bps), and Consumer Durables (+11bps) sectors, reported S&P Global. On the other hand, the largest decreases were in the Financial Services (-10bps) and Real Estate Management and Development (-4bps) sectors.
Talking about the US equities, the average short interest decreased to 77 basis points during July 2024. Significant increases in short interest were seen throughout REITs (+6 basis points) and the Household and Personal Products (+8 basis points) sectors. Conversely, the largest declines were in the Financial Services (-15 basis points) and the Automobile (-9 basis points) sectors.
Heavily Shorted Stocks Might Not Always Be in Distress, Says S3 Partners
S3 Partners revealed that there is a relatively weak correlation between short positions in certain assets and distress measures. This means that not all heavily shorted stocks are facing difficulties. As per the firm, broader market sentiments and valuation concerns are some of the factors that can drive short interest.
The company believes that shorting an asset can form part of broader strategies or hedging activities not linked to distress. It mentioned that there can be 3 measures of bearishness for stocks —- average analyst ratings (From 1 to 5), Credit default swap (CDS) spreads, and Altman Z-Score.
For example, the US Dollar had a low short position of ~1.32%. However, it had a high CDS spread of 1000 basis points. This indicates high perceived distress on the currency even though there is minimal short interest. This can be because of factors such as currency market dynamics or investor sentiments.
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Accenture plc (NYSE:ACN)
Number of Hedge Fund Holders: 68
Short % of Shares Outstanding (August 15, 2024): 1.06%
Accenture plc (NYSE:ACN) is a leading global IT services firm, which provides consulting, strategy, technology, and operational services.
Accenture plc (NYSE:ACN) is expected to benefit from sticky clientele. Notably, high switching costs demonstrate that its clients, primarily those with larger contracts, will not switch providers. This gives the company healthy revenue visibility. The company continues to focus on inorganic growth opportunities and has a history of growing through acquisitions.
Recently, it purchased Excelmax Technologies in India. This should help Accenture plc (NYSE:ACN) boost its silicon design and engineering capabilities. Next, it acquired True North Solutions, an industrial engineering solutions provider in Canada. This will help the company’s clients transport energy safely and more efficiently.
Also, Accenture plc (NYSE:ACN) is well-placed to benefit from the current AI wave. It can help in the development and implementation of large language models for generative AI and the identification of business data. Wall Street analysts are optimistic about its acquisition of Cientra, which is a silicon design and engineering services company providing custom silicon solutions for global clients. This should complement Accenture plc (NYSE:ACN)’s expertise in microprocessor design.
For 4Q 2024, the company expects revenue in the range of $16.05 billion and $16.65 billion, with 2% to 6% growth in local currency. Its operating cash flow for FY 2024 is expected between $9.3 billion and $9.9 billion.
UBS Group upgraded the shares of Accenture plc (NYSE:ACN) from a “Neutral” rating to a “Buy” rating. They gave a price target of $400.00 on 19th July.
Aoris Investment Management, a specialist international equity manager, released its Q2 2024 investor letter. Here is what the fund said:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”
Overall ACN ranks 5th on our list of the best big name stocks to buy according to short sellers. While we acknowledge the potential of ACN 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 ACN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
