Short Interest Plunged In These 5 Stocks During The First 2 Weeks of August

With the bull market alive and well for the seventh-consecutive year, short interest in some stocks has recently fallen sharply due to heavy covering.

In this article, we’ll take a closer look at five stocks, American Equity Investment Life Holding (NYSE:AEL), FleetMatics Group PLC (NYSE:FLTX), AEGON N.V. (ADR) (NYSE:AEG), Bellatrix Exploration Ltd (NYSE:BXE), and KeyCorp (NYSE:KEY), that have seen the percentage of their float that is short fall substantially from July 29 to August 15. We’ll also use the latest 13F data to see what the smart money that we track thinks of each stock.

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#5 KeyCorp (NYSE:KEY)

– Number of Hedge Fund Shareholders (as of June 30): 46
– Total Value of Hedge Funds’ Holdings (as of June 30): $934.46 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 10.00%

Short interest in KeyCorp (NYSE:KEY) fell by 55.5% to 23.84 million shares from July 29 to August 15, as many investors steered clear of shorting financial stocks this month. Not only is the U.S. economy firing on all cylinders, but many investors also expect the Federal Reserve to begin hiking interest rates soon. If interest rates rise, KeyCorp’s interest income will rise too. Given a price-to-book ratio of just 0.93, an annual dividend yield of 2.76%, and the impending interest rate hikes, the short case for KeyCorp is not nearly as strong. Jim Simons‘ Renaissance Technologies raised its stake in KeyCorp by 65% during the second quarter, to more than 4.5 million shares at the end of June.

#4 Bellatrix Exploration Ltd (NYSE:BXE)

– Number of Hedge Fund Shareholders (as of June 30): 7
– Total Value of Hedge Funds’ Holdings (as of June 30): $13.22 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 6.30%

The bear case for Bellatrix Exploration Ltd (NYSE:BXE) is pretty self explanatory. Oil and gas prices are low and the stock currently trades for under $1 per share. If oil and gas prices stay low, Bellatrix shareholders will suffer substantial dilution to keep the company alive until prices recover. If the stock is delisted by the NYSE and the company doesn’t do a reverse split, the stock could fall substantially in the pink sheet market due to the lack of liquidity. Throwing a wrench in the bear case has been rising WTI prices, which have rallied by almost 20% since the end of July. Due to the rising value of WTI, Bellatrix’s short interest fell by 61.5% during the 17-day period ended August 15, to 976,154 shares short.

We’ll check out three more stocks with even greater declines in short interest between July 29 and August 15 on the next page.

#3 AEGON N.V. (ADR) (NYSE:AEG)

– Number of Hedge Fund Shareholders (as of June 30): 4
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.66 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 0.01%

AEGON N.V. (ADR) (NYSE:AEG)’s shares on borrow retreated by an inauspicious 66.6%, to 3.11 million from July 29 to August 15. One potential reason for the short drop could be that AEGON reported a second quarter net loss of €385 million on revenue of €2.77 billion (up by 18.4% year-over-year). In U.S. dollar terms, that’s a net loss of $431 million on revenue of $3.1 billion. Although AEGON lost money, the results might have been better than the short expectations, leading the short investors to take profits. AEGON shares are down by over 32% in 2016.

#2 FleetMatics Group PLC (NYSE:FLTX)

– Number of Hedge Fund Shareholders (as of June 30): 11
– Total Value of Hedge Funds’ Holdings (as of June 30): $67.73 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 4.00%

Bearish investors pared their wagers in FleetMatics Group PLC (NYSE:FLTX) by 74.2%, or 2.69 million shares from July 29 to August 15, mainly due to the news that Verizon Communications Inc. (NYSE:VZ) agreed to buy Fleetmatics for $60 in cash per share on August 1. Given that most investors expect the deal to close successfully and given Verizon’s rock-solid balance sheet and stable income streams, the short case for FleetMatics just isn’t there anymore.

#1 American Equity Investment Life Holding (NYSE:AEL)

– Number of Hedge Fund Shareholders (as of June 30): 17
– Total Value of Hedge Funds’ Holdings (as of June 30): $84.86 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 7.20%

With the short interest in the stock dropping by a whopping 74.8% in the 17 day-period beginning July 29, American Equity Investment Life Holding (NYSE:AEL) is the most-widely covered stock on our list. The company, which is a leading issuer of fixed index annuities, reported second quarter net income of $0.18 per share and second quarter annuity sales of $2.1 billion, the latter being up by 17% from the second quarter of 2015. Richard S. Pzena‘s Pzena Investment Management more than tripled its stake in American Equity Investment during the second quarter, to 2.68 million shares.

Disclosure: None