Squeeze Potential? The Top 3 Most Shorted Industries

by: Contextuall

To compile the following list, we collected the latest short float data on more than 4100 stocks grouped by industry.

After creating a pivot table on the data, we identified the most shorted industries, based on the days to cover ratio (also known as the short ratio).

Days to cover is a ratio that compares the total shares shorted divided by the average daily trading volume for a stock. In other words, it describes how many days of trading volume will be needed to cover all the shorted stocks.

A more complete list of the top 100 shorted industries can be accessed here.

Most Shorted Industry #1: Dairy Products

Avg. Days to Cover Ratio: 23.8 days (based on 4 companies)

Related Companies: Feihe International, Inc. (NYSE:ADY), Dean Foods Company (NYSE:DF), Lifeway Foods Inc. (NASDAQ:LWAY), Synutra International Inc. (NASDAQ:SYUT)

Investors appear to be positioning for a scenario where drought-driven food costs hurt demand for dairy products.

Food prices will increase an average 4 percent annual rate in the nine months ending June 2013, up from 1.5 percent currently, said JP Morgan's Michael Feroli, in an interview with Bloomberg. That may trim real disposable incomes by 0.3 percentage point from the fourth quarter of 2012 through the first half of next year and reduce spending by a similar amount.

Most Shorted Industry #2: Radio Broadcasting

Avg. Days to Cover Ratio: 19.15 days (based on 8 companies)

Related Companies: Beasley Broadcast Group Inc. (NASDAQ:BBGI), Salem Communications Corp. (NASDAQ:SALM), SIRIUS XM Radio Inc. (NASDAQ:SIRI), Entercom Communications Corp. (NYSE:ETM)

Most of the radio broadcasting stocks have seen significant levels of short selling during recent months, but market leader Sirius has benefited from recent short covering.

"It appears that those who were short [SIRI] in July got clobbered by the recent spat of buying by Liberty Media (LMCA), as well as Sirius XM's outstanding earnings call for the second quarter of 2012," writes fellow SeekingAlpha contributor Stephen Faulkner.

"Given the 40 cent rise at the beginning of August, it's safe to assume that those who were short were forced into panic covering, helping to drive the share price up to current levels."

Most Shorted Industry #3: Newspaper Publishers

Avg. Days to Cover Ratio: 18.33 days (based on 9 companies)

Related Companies: Gannett Co., Inc. (NYSE:GCI), The New York Times Company (NYSE:NYT), The E. W. Scripps Company (NYSE:SSP), The McClatchy Company (NYSEMKT:MNI)

By now, everyone has heard of the newspaper industry's troubles, and it should come as no surprise that short sellers are also targeting this industry.

It's worth pointing out that Warren Buffett has been snapping up shares of local newspapers like Lee Enterprises (NYSE:LEE)--does this signal that the overall bearishness affecting the industry is excessive?

Probably not. Buffett has been avoiding the national newspapers, and for good reason. Layoffs, falling profit margins and increased competition from online media all provide significant downside to this industry.

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.