Many people like to follow what institutional and hedge funds are buying, selling and shorting. So I began looking over some companies that have been making some moves lately. These companies are Ford (F), Tesla (TSLA) and General Motors (GM).
Short interest is an indicator of what short sellers think about a particular stock. Selling a stock short is a practice of selling securities that are not currently owned, with the intention of buying them back (covering) at a lower price. Short sellers assume that they will be able to buy the stock back at a lower price than when they first paid for it.
If short interest increases, then shorts are betting that the price of the security will be going down. However, if short interest decreases, then shorts are betting that the price of the security is near the bottom and will likely be going back up. Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Below is a table of the short interest increases and decreases of the following companies.
As you can see from the table above, short interest has been increasing and decreasing in these stocks. Why is this so? There could be many different reasons as to why, so a good question to ask yourself in this situation is what do the shorts know that you don't. Let's take a look at the companies to see what has transpired for the increase and decrease in short interest.
Tesla designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. Tesla was founded in 2003 and its headquarters is in Palo Alto, California.
Tesla has a market cap of 11.29 billion with its recent closing price of $97.73 on Wednesday. As of May 30, 2013, Tesla had short interest of 18.58 million, representing a decrease of over five million shares or 20% since May 15, 2013. The short float now stands around 24% with the days to cover ratio at one day. Analysts have an average price target of $70.00 on Tesla, which would reflect a decrease of about 28% from its recent closing price of $97.73.
*Values are in the millions
Looking over the short interest data over the last couple of months we can see that the short interest in Tesla has dramatically decreased. Over the last couple of months Tesla has given shorts fits with better than expected news. Shorts have been in a squeeze for sometime now as Tesla recently hit a new 52-week high just two weeks ago. However, because of the sharp rise in share price, I expect to see shorts getting back into Tesla as investors cash in on their profits. However, if shorts do start getting back into Tesla that doesn't automatically mean they are right. Just look what happened to the shorts just a couple months ago.
GM designs, manufactures, and markets cars, crossovers, trucks, and automobile parts worldwide. The company was founded in 1908 and is based in Detroit, Michigan.
GM has a market cap of 45.98 billion with its recent closing price of $33.45 on Wednesday. As of May 30, 2013, GM had short interest of 72.98 million, representing an increase of over 1.1 million shares or 1.6% since May 15, 2013. The short float now stands around 9% with the days to cover ratio around six days. Analysts have an average price target of $39.00 on GM, which would reflect an increase of about 16% from its recent closing price of $33.45.
*Values are in the millions
Looking over the short interest data over the last couple of months investors can see that the short interest in GM is on the rise again. Just like Tesla, GM has recently hit a new 52-week high. With short interest on the rise again, we can see that shorts are betting that GM will be coming to a stop.
But are the shorts right? GM's stock price has been pretty solid lately as it sits at an attractive valuation level as well as its financial position. Even though the debt levels seems fairly high for some investors, they are actually at pretty reasonable levels. If GM continues to push upward, shorts will have no choice but to cover.
Ford engages in the development, manufacture, distribution, and service of vehicles, parts, and accessories worldwide. Ford was founded in 1903 and is based in Dearborn, Michigan.
Ford has a market cap of 60.42 billion with its recent closing price of $15.37 on Wednesday. As of May 30, 2013, Ford had short interest of 67.17 million, representing a decrease of almost nine million shares or 12% since May 15, 2013. The short float now stands around 2% with the days to cover ratio around two days. Analysts have an average price target of $16.50 on Ford, which would reflect an increase of about 7% from its recent closing price of $15.37.
Looking over the short interest data over the last couple of months investors can see that the short interest in Ford has been on the upswing. It appears to be that the shorts are betting on some bad news as they look to capitalize on the uneasiness of the global markets.
On the bright side for investors, just like Tesla and GM, Ford has also recently reached 52-week highs. Unlike Tesla and GM though, Ford rewards its investors with a healthy dividend of 2.50%. Not a bad play in my playbook. I would caution investors that I would not want to short Ford at these levels as Ford looks to continue delivering for its shareholders.
NYSE & NASDAQ Short Interest Total
Looking over a couple of stocks will not tell us the whole story of what is going on in the market. So let's take a look at what is taking place over at the Nasdaq. From the updated short interest numbers, we can see that short interest has decreased to 7.48 billion as of May 30, 2013 compared with 7.57 billion back on May 15, 2013, and 7.59 billion on April 30, 2013.
The New York Stock Exchange Group, Inc. based on information received from its members and organizations, had short interest decrease as well to 13.44 billion as of May 30, 2013 compared with 13.51 billion on May 15, 2013.
Looking over both the Nasdaq and NYSE figures we can see that short interest hasn't swayed much in either direction over the last month or so. I was actually surprised to see that there was a decline in short interest throughout May, considering many investors take the 'sell in May go away' theory to heart.
Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Investors that can identify the trends from the short interest figures stand to greatly benefit from it.
Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: The information that I used in this article came from Nasdaq.com, Yahoo!Finance, CNNMoney, Scottrade and WSJ.com.