A large influx of short-sellers shouldn’t be a condemning factor to any company, but it could be a red flag from traders that something may not be as cut-and-dried as it appears. Let’s look at three companies that have seen a rapid increase in the number of shares sold short and see whether traders are blowing smoke or if their worry has some merit.
| Company | Short Increase March 15 to March 29 | Short Shares as a % of Float |
|---|---|---|
| Diana Shipping Inc. (NYSE:DSX) | 82.9% | 2.9% |
| The TJX Companies, Inc. (NYSE:TJX) | 39.2% | 1.4% |
| IAMGOLD Corporation (USA) (NYSE:IAG) | 39.1% | 1.1% |
Source: The Wall Street Journal.
Sink or swim?
The dry bulk shipping sector has been the epitome of feast or famine since 2007. The incredible rise of dry bulk rates coupled with their even faster descent and shipbuilding overcapacity has led to years of underperformance from shippers. Personally, I’ve shied away from the sector for a number of reasons, including low charter contract rates, overcapacity, and weak global demand for the commodities these shippers transport. However, if I were to pick one outperformer, it’d be Diana Shipping Inc. (NYSE:DSX).
Keep in mind that Diana’s story is far from perfect. Diana’s fourth-quarter revenue dropped 75% as revenue from its day-rate charters, its primary source of revenue and profit, fell 14%. However, Diana also offers some advantages that should help it navigate these rough seas.
First and foremost, 26 of its 32 operational vessels are locked into contracts into at least the first quarter of 2014. That may not seem like a long time, but it provides predictable cash flow while also allowing the company the flexibility to negotiate new contracts if the Baltic Dry Index rises considerably rather than getting stuck for three or more years at historically weak shipping rates. Also — and this is key — Diana Shipping Inc. (NYSE:DSX) has only $13.5 million in net debt and has been cash flow positive on an operational basis over the trailing-12-month period. With so many of its peers deeply underwater in terms of debt, short-sellers may want to carefully wade around Diana.
Fashion doesn’t take a holiday
There’s not much that gets my goat more than when retailers trot out the poor weather excuse for why their results weren’t up to par. But in the case of The TJX Companies, Inc. (NYSE:TJX), parent of T.J. Maxx, I’m going to let it slide.
The TJX Companies, Inc. (NYSE:TJX)’s March same-store sales definitely didn’t hit the mark compared to what we’re used to seeing from the discount brand-name retail chain. Same-store sales dropped 2%, which the company blamed on colder-than-normal weather, and saw a 1% retracement over the first three months of the year.
In TJX’s defense, it was up against some very robust comparisons from last year’s exceptionally warmer winter. In addition, Ross Stores, Inc. (NASDAQ:ROST), which has comparably priced designer wear that caters to fashion-savvy-but-cost-conscious shoppers, delivered a 2% increase in same-store sales compared to a 10% boost last year, echoing the same tough comparisons at TJX. To me, this doesn’t demonstrate struggles at either discount retailer. Instead, it shows continued strength as sales barely budged lower even as the weather proved challenging once again this year. Consumers are definitely fickle when it comes to spending on apparel, but TJX and Ross Stores, Inc. (NASDAQ:ROST) have both shown incredible consistency with regard to inventory management and getting the right product at a reasonable price point. Bet against TJX or Ross at your own peril.
