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 Apple Inc. (NASDAQ:AAPL) 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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A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Short % of Shares Outstanding (August 15, 2024): 0.80%
Apple Inc. (NASDAQ:AAPL) designs a variety of consumer electronic devices, including smartphones (iPhone), tablets (iPad), PCs (Mac), smartwatches (Apple Watch), AirPods, and TV boxes (Apple TV), among others.
Apple Inc. (NASDAQ:AAPL)’s long-term outlook is supported by its competitive advantages, which include high customer switching costs, intangible assets, and network effects around its iOS ecosystem. The company provides an expansive ecosystem of tightly integrated hardware, software, and services, which locks up the customers. Ultimately, this helps in generating strong profitability. Apple Inc. (NASDAQ:AAPL)’s move to in-house chip development accelerated its product development and increased differentiation.
Wall Street analysts believe that a higher mix of premium products, such as iPhone Pro models, should help improve product gross margins moving forward. Regarding AI, Apple Inc. (NASDAQ:AAPL) is all prepared to make a massive push to the industry, given its release of iPhone 16 and the launch of Apple Intelligence, which is a generative overhaul of the operating systems. Apple Intelligence is an exciting development and Apple is on the cusp of an iPhone upgrade super cycle.
This new AI platform is expected to bring generative features throughout the company’s product lineup. These include a major upgrade to Siri, image, and language generation tools. Therefore, the company’s interconnected ecosystem should continue to act as a tailwind.
In 3Q 2024, Apple Inc. (NASDAQ:AAPL) released 3Q 2024 financial results, with revenues reaching $85.8 billion, up 5% YoY, and earnings per diluted share touching $1.40, up 11% YoY. Its strong financial performance demonstrates the continued innovation and growth in critical areas like AI and machine learning.
The Goldman Sachs Group upped their price target on the shares of Apple Inc. (NASDAQ:AAPL) from $265.00 to $275.00, giving it a “Buy” rating on 2nd August.
Mar Vista Investment Partners, LLC, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Investors were reminded of the strength of the Apple Inc. (NASDAQ:AAPL) ecosystem as management demonstrated how generative AI solutions would be integrated into Apple’s 1.2 billion iPhone installed base. Apple plans to integrate generative AI features into its iOS 18, which will be broadly released in the fall with the iPhone 16. We believe Apple should benefit from generative AI as it will spur a meaningful iPhone upgrade cycle and create new avenues of monetization through its app store and advertising offerings. We believe this will support intrinsic value growth that will range between high-single-digits and low-double-digits over our investment horizon.”
Overall AAPL ranks 3rd on our list of the best big name stocks to buy according to short sellers. While we acknowledge the potential of AAPL 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 AAPL 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.
