We recently compiled a list of the 7 Best High Short Interest Stocks To Invest In. In this article, we are going to take a look at where Williams-Sonoma Inc. (NYSE:WSM) stands against the other high short interest stocks.
What’s Going On in China?
China’s housing market, once a booming sector, has experienced a significant downturn in recent years. To revitalize the market, the government recently implemented a series of policy changes aimed at stimulating demand. These changes include easing home-buying restrictions in major cities like Guangzhou, Shenzhen, and Shanghai.
The relaxation of these restrictions has had a positive impact on the stock market. Investors, encouraged by the government’s efforts, have been pouring money into Chinese stocks, particularly those related to the real estate sector. This surge in investment has led to a significant increase in stock prices. The CSI 300 index saw its most significant weekly gain since 2008, rising over 15% in late September 2024
While all of this activity has had a positive short-term impact, economists believe that more measures are needed to address China’s weak domestic demand. The housing market is still grappling with concerns about developer solvency and the overall economic outlook. The government’s efforts to address these issues will be crucial for the long-term recovery of the housing market and the broader economy.
On September 27, Jeremy Siegel, Wharton School professor of finance, joined CNBC’s ‘Squawk on the Street’ to discuss how much of a game changer recent news from China is. He shared his insights on the potential implications of global market changes, particularly in light of discussions surrounding Japan and China.
Siegel agreed with hedge fund manager David Tepper’s views but noted a divergence regarding Japan’s long-term appreciation and its effects on exports and interest rates. He highlighted that, despite concerns, the recent performance of the Japanese yen and Nikkei, showing gains of 2% each, indicates that there may still be opportunities to capitalize on these markets.
He emphasized the positive developments in China, suggesting that buying into a market with a price-to-earnings ratio of around 10 can be advantageous, especially considering the current P/E ratio for China is approximately 12 to 13. He pointed out that this valuation is relatively low compared to other markets, with Brazil being one of the few markets with an even lower ratio. Siegel referenced Warren Buffett’s concept of “margin of safety” when investing in low P/E markets, reinforcing his belief in the potential for gains in China despite some bearish sentiments.
When asked about the US market, Siegel indicated that it appears full at present. He praised the Fed’s new trajectory and suggested that if they implement a quarter-point rate increase at each meeting, they could reach a target rate of around 3.5% by mid-2025. He argued that current inflation data supports this approach, although he expressed skepticism about reaching the Fed’s dot plot target of 2.9% without a recession.
Siegel believes that while inflation remains a concern, the Fed does not need to take drastic measures such as a 50 basis point hike. Instead, he advocates for a more gradual approach to rate increases, which would help stabilize the economy without causing significant harm. He noted that if the market anticipates these adjustments, the outlook for the remainder of the year could improve.
Overall, his analysis suggests that while opportunities exist in international markets like Japan and China, investors should remain cautious about US equities due to their current valuations. His perspective encourages a balanced approach to investing in various global markets while keeping an eye on macroeconomic indicators and central bank policies.
China’s recent stimulus measures have encouraged renewed investor interest in Chinese stocks. Short-term traders have been consistently purchasing stocks, and hedge funds have increased their allocations to Chinese equities. While the stimulus is positive, underlying economic challenges could affect investment strategies, including short-selling.
Methodology
To compile our list, we used the Finviz stock screener to find companies with a short interest between 10% and 25%. We then selected 10 stocks that were the most shorted but at the same time popular among elite hedge funds and that analysts were bullish on. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers. The stocks are ranked in ascending order 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).
An interior of a modern home with a wide selection of cookware, tools and cutlery on display.
Williams-Sonoma Inc. (NYSE:WSM)
Short % of Float As of September 13: 16.88%
Market Capitalization as of September 30: $19.5 billion
Number of Hedge Fund Holders: 39
Williams-Sonoma Inc. (NYSE:WSM) is a consumer retail company that sells kitchenware and home furnishings and operates a portfolio of well-known brands, including Williams Sonoma, Pottery Barn, West Elm, and Rejuvenation. It’s known for its curated selection of products, expert customer service, and commitment to quality.
The company has embraced augmented reality technology to enhance its online shopping experience. Its new Design Crew Room Planner allows customers to virtually place furniture in their own spaces.
Management reported a slowdown in sales due to a slower housing market, which is negatively impacting demand for home products. Overall, the revenue for FQ2 2025 was down 3.99% year-over-year.
Pottery Barn’s sales declined by 7.1%, but there were positive trends in coastal decorating, entertaining, and seasonal holiday products. The Pottery Barn Children’s Business improved by 1.5%. West Elm again declined by 4.8%, while the Williams-Sonoma brand was down 0.8%.
The B2B business continues to expand, with strong growth in contracts (21.6%) and trade (7.1%). The company secured notable wins in the hospitality sector, including Sheraton Boston, Hilton Beverly Hills, and Renaissance Las Vegas. It launched a new partnership with IHG’s Hotel Indigo brand and is growing its presence in the multifamily space with partnerships like Korman Communities and Discovery Land Company.
Despite a decline in comparable sales, the company exceeded profitability expectations in the second fiscal quarter. The operating margin reached 16.2%, and earnings per share were $1.74, reflecting the recent 2-for-1 stock split.
The company’s strategic focus on innovation, customer experience, and margin improvement has positioned it for continued success. Management is confident in its ability to navigate the market and deliver sustainable growth, driven by Williams-Sonoma Inc.’s (NYSE:WSM) strong foundation and commitment to excellence.
ClearBridge Sustainability Leaders Strategy made the following comment about Williams-Sonoma, Inc. (NYSE:WSM) in its Q3 2023 investor letter:
“In a strong showing for the Strategy’s consumer discretionary holdings, Williams-Sonoma, Inc. (NYSE:WSM), which sells kitchenware and home furnishings, was the top contributor in the quarter after its August earnings report showed exceptional profitability and the company raised its full-year guidance. Shares jumped further in September after a private equity firm increased its stake, suggesting recent weakness was overdone. The company’s high-quality fundamentals make it a good defensive fit for an uncertain environment: it generates significant free cash flows, has no debt and the liquidity to invest in the business first and then return excess to shareholders.”
Overall WSM ranks 3rd on our list of the best high short interest stocks to invest in. While we acknowledge the potential of WSM as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WSM 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.