Short-Sellers Are Busy Covering Their Bets Against These Stocks

With the third quarter coming to an end and companies gearing up for the next quarterly results season, there has been a rush among short sellers to cover their positions in several stocks. Taking that into account, in this post, we are going to focus on five NYSE stocks that saw a significant decline in their short interest during the first-half of September. Additionally, we will also discuss what smart money tracked by us thought about these stocks while entering the third quarter.

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#5 Dominion Diamond Corp (NYSE:DDC)

– Decrease in short interest in the period between August 31 – September 15 : 40.2%

– Hedge Funds With Long Positions (as of June 30): 14

– Value of Hedge Funds’ Holdings (as of June 30): $53.56 Million

Let’s begin with Dominion Diamond Corp (NYSE:DDC), whose short interest declined by 40.2% to 436,040 shares during the first-half of September. Since Dominion Diamond Corp (NYSE:DDC)’s stock has appreciated by 20% since September 15, one can conclude that traders made a wide decisions by covering their short positions in advance. On September 9, the diamond mining company reported its second quarter results, declaring a loss of $0.39 per share on revenue of $160 million for the period, versus analysts’ expectation of a loss of $0.06 per share and revenue of $196.50 million. During the second quarter, the number of funds from our database that were long Dominion Diamond fell by two, while the aggregate value of their holdings in it fell by $17.08 million.

#4 NextEra Energy Inc (NYSE:NEE)

– Decrease in short interest in the period between August 31- September 15 : 45.4%

– Hedge Funds With Long Positions (as of June 30): 32

– Value of Hedge Funds’ Holdings (as of June 30): $1.20 Billion

On August 29, NextEra Energy Inc (NYSE:NEE) announced that it has reached an agreement with global financial institutions regarding its bid to acquire Energy Future’s Texas-based utility Oncor Electric Delivery. This announcement led shorts to cover their positions in droves, causing the short interest in the stock to fall 45.4% to 1.1% of the company’s float in the next 16 days. Shares of NextEra Energy Inc (NYSE:NEE) made their lifetime high at $131.98 in July and even though they have corrected since then, the stock still is trading up 16.6% for 2016 currently. In order to make its Oncor Electric bid more lucrative for Energy Future’s creditors, on September 19, NextEra Energy revealed that it has hiked its offer by $300 million, raising the cash component of the deal to $4.4 billion from $4.1 billion. The ownership of NextEra Energy among funds covered by us declined by three during the second quarter, but the aggregate value of their holdings in it increased marginally by $9 million.

#3 Piedmont Natural Gas Company, Inc. (NYSE:PNY)

– Decrease in short interest in the period between August 31- September 15 : 46.3%

– Hedge Funds With Long Positions (as of June 30): 14

– Value of Hedge Funds’ Holdings (as of June 30): $295.89 Million

With Duke Energy Corp’s acquisition of Piedmont Natural Gas Company, Inc. (NYSE:PNY) on its way towards completion, the short interest in the latter fell drastically to 1.24 million shares from 2.31 million shares. Piedmont Natural Gas Company, Inc. (NYSE:PNY)’s stock has been trading very close to Duke Energy Corp’s purchase price of $60 per share for more than six months now, signaling the strong conviction of market participants on the deal getting completed. Hedge funds tracked by us were equally convinced about the completion of this deal as during the second quarter the ownership of Piedmont among them increased by five and the aggregate value of their holdings in it rose by $13.6 million.

#2 Lockheed Martin Corporation (NYSE:LMT)

– Decrease in short interest in the period between August 31- September 15 : 47.7%

– Hedge Funds With Long Positions (as of June 30): 39

– Value of Hedge Funds’ Holdings (as of June 30): $1.18 Billion

Lockheed Martin Corporation (NYSE:LMT)’s stock lost almost 10% in the second-half of August after it revealed on August 15 that the sale of its IT division to Leidos Holdings would provide less earnings boost to the company than originally anticipated. However, once the stock stabilized following this beating, the short interest in Lockheed Martin Corporation (NYSE:LMT) declined to 3.5 million shares from 6.7 million shares in the next 15 days. The number of hedge funds we track that were long Lockheed Martin increased by only two during the second quarter, but the aggregate value of their holdings in it jumped by 36.67%. The company recently hiked its quarterly dividend by 10% to $1.82 per share, which represents an annual yield of 3.04%, and also authorized additional share repurchase of $2 billion. Last month, analysts at Wells Fargo & Co. upgraded the stock to ‘Outperform’ from ‘neutral’ and also raised their price target on it to $227.50 from $199.01.

#1 Johnson Controls Inc (NYSE:JCI)

– Decrease in short interest in the period between August 31- September 15 : 48.5%

– Hedge Funds With Long Positions (as of June 30): 32

– Value of Hedge Funds’ Holdings (as of June 30): $1.09 Billion

Johnson Controls Inc (NYSE:JCI) saw the largest decrease in short interest during the first-half of September among all the stocks covered in this list. This  short covering frenzy started after the company announced, on August 31, the preliminary results of the elections made by its shareholders in the Tyco International merger. Within a week of that announcement, Johnson Controls Inc (NYSE:JCI) revealed that it has completed its merger with Tyco International, causing a short squeeze in the former’s stock. Though shares of the company have receded since then, they still boast year-to-date gains of 26.41%. Following the completion of Tyco merger, Johnson Controls will be soon spinning off its automotive parts business as a separate publicly traded entity called ‘Adient’. During the second quarter, the company saw a notable increase in its popularity among funds covered by us with its ownership among them increasing by five and the aggregate value of their holdings in it jumping by 68.16%.

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