Some FTSE stocks attract short-sellers like bees to honey. Think battered cinema operator Cineworld or troubled white goods seller AO World. That said, there are other companies where this kind of attention is arguably more surprising. Let’s look at a couple of examples and see whether there’s a buying opportunity for me. 

Is the purple patch over?

It’s interesting to see Kingfisher (LSE: KGF) so high up the table of most hated stocks. Thanks to the explosion in the popularity of DIY over the pandemic and a very healthy housing market, investors might assume that short-sellers would have no interest in the B&Q and Screwfix owner. Then again, recent share price activity suggests otherwise.

Kingfisher certainly hasn’t had the best of starts to 2022. In sharp contrast to index peers like BT and BP, the valuation here has fallen 10% year-to-date. That’s not nearly as bad as the drops seen in tech companies, but it still implies that some in the market think the FTSE 100 member’s purple patch might be over.

Given the above, it’s clear that next month’s full-year results will receive a lot of attention. Back in November, Kingfisher’s share price wobbled after the company revealed like-for-like sales of £3.2bn in Q3 were down 2.4% compared to the same period in 2020.

Is this indicative of more people spending money on other things they couldn’t do previously? Or is it simply a natural fluctuation in earnings that all companies experience? We’ll find out soon enough.

In the meantime, Kingfisher’s stock was trading on a P/E of 11 as markets opened. It also comes with a 3.7% yield. That looks pretty reasonable to me. As things stand however, I’m content to sit on the sidelines and wait to see just how tricky the last quarter has been. 

Shorting target

Another FTSE share that makes the ‘most hated’ Top 10 list is Domino’s Pizza (LSE: DOM). Again, this seems a bit surprising.

Back in December, the company announced it had reached a resolution to a long-running feud with its franchisees. As part of the deal, Domino’s will invest £20m over three years in stores and online apps. Marketing will also be stepped up.

In return, franchisees are expected to open a minimum of 45 stores per annum in the next three years, test and roll out new tech, and get involved in national promotions.

As might be expected, this news sent the shares sharply higher. Unfortunately, a good proportion of these gains have since been lost. Shares have fallen back 16% year-to-date.

But maybe this selling pressure (and shorter interest) does make sense. Like Kingfisher, the trading tailwind from multiple UK lockdowns is now over. The sharp rise in the cost of living could also be relevant. When times are tough, it seems likely that more of us will shun a takeaway in favour of a cheaper, shop-bought alternative. 

As a side note, Domino’s net debt has climbed significantly in recent years. I’d prefer it to be going in the other direction.

But companies with franchise business models often prove to be great wealth-compounders over the long term. Domino remains a highly-cash-generative business and P/E of 19 is also roughly in line with the company’s average P/E over the last five years.

Domino’s has now been added to my watchlist. I wonder if this attention from short-sellers might prove short-lived.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Currently sitting at just under 200p, the stock seems to have held onto some of its momentum. However, does GameStop have the capacity to push higher in September? Let’s take a closer look.

The story so far

The GameStop share price shot up drastically after being ‘short squeezed’. This typically occurs when a stock is heavily shorted by a large hedge fund, which is betting the price will go down. Retail investors then get behind the share, driving its price up – the opposite of what hedge funds are expecting. Hedge funds pay interest on their shorted shares, and when the share price increases, so does the interest. Once this reached an unsustainable level (when share price increases rapidly), hedge funds buy back their shares, and the stock surges upwards even more.

For GameStop, this plan was cultivated on the online platform Reddit and helped drive the share price up over 1,800%. The GameStop share price has since been extremely volatile, often fluctuating in double-digit percentages daily.

GameStop share price: next steps

There are 76m Gamestop shares outstanding and 63m of these are floated on the exchange for investors to trade. Some 12% of these floated shares (7.5m) are held in short positions. Therefore theoretically, GameStop could be squeezed again. This is the only way I see GameStop shooting up further in the short term.

Looking at company fundamentals paints a bleak picture for the firm. Since 2018, over 1,000 stores have been shut down in an effort to drive up poor margins. The company’s Q2 2021 earnings report highlighted a 25% increase in sales of $1.3bn compared to Q2 2020. However, this figure is rather misleading considering most stores were shut during Q2 2020. Comparing this to Q1 2019, sales were actually down almost 18%.

In addition to this, I feel the GameStop share price is heavily overvalued, trading at almost 16x book value. Considering the firm is still loss-making, the current share price seems absurd to me.

One positive for GameStop moving forward is the $2bn capital it has been able to raise by issuing new shares. This capital will be used to expand the firm’s e-commerce business. GameStop has already announced leases on warehouses in Pennsylvania and Nevada helping spur the online shift. In an increasingly online world, it is important the GameStop expands past its traditional bricks-and-mortar business plan. Although the firm will likely never match e-commerce giants, I think this transition could benefit the GameStop share price down the line.

The Verdict

I think the GameStop share price has the volatility to make double-digit percentage moves in September. However, I don’t think I will see it explode again in September. Personally, the weak financials and outlandish valuation are a red flag for me. However, I am intrigued to see how the GameStop share price story continues to pan out, so will be watching from the sidelines but not buying.

The post Will the GameStop share price explode in September? appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The five most heavily shorted UK stocks are J Sainbury, Cineworld, Hammerson, Petropavlovsk, and WM Morrison Supermarkets. Short-sellers borrow shares and then sell them. If share prices fall, they can repurchase them at a lower price and pocket the difference. If share prices rise, short sellers will be buying them back at higher prices, and they will lose money. So, a lot of short interest in stock might be considered a bearish signal.

Top five shorted UK shares

I used today’s short position update from the Financial Conduct Authority (FCA) to find the five most heavily shorted UK stocks. Firms with a net short position of 0.1% or greater of the issued share capital of a listed company have to report their position to the FCA. I have summed up the positions of various firms that are short the same stock to get a total.

Sainbury has 7.51% of its shares sold short and is the number one shorted UK share at present. Next is Cineworld at 7.29%, then Hammerson with 6.47%. Petropavlovsk comes in next at 5.72%, and finally, Morrison is in fifth place with 5.6%. 

Why are these stocks being shorted?

Short selling a stock is not necessarily an indication that that seller thinks the price will crash. Strategies like equity market neutral and pairs trading involve buying and shorting stocks. They do not necessarily depend on shorted stock prices crashing. However, the top five are heavily shorted, and I think that indicates the short sellers are taking a bearish position.

Hammerson is a commercial landlord. It has suffered from lower rent collections during the pandemic. Its shares have risen sharply since October 2020, perhaps in anticipation of a return to normality. But, perhaps the short sellers are forecasting unpaid rent problems persisting long into 2021 and beyond and maybe forcing a breach in the company’s debt covenants.

Short sellers might think Cineworld has lost customers to streaming and online movie releases. The lack of blockbuster releases and social distancing protocols might make a cinema trip unappealing throughout 2021, which could make dealing with the company’s large debt pile a problem.

As for Sainsbury and Morrison, I would suggest the shorters think the boost in sales and share price seen during the pandemic is coming to an end. Also, a shift to ordering online during the pandemic, if it persists, will be damaging as it stands because it’s the least profitable channel.

And finally, we have Petropavlovsk. In the last year, there has been a boardroom coup, a police investigation of an executive, and a downgrade of reserves. Short sellers will likely be focusing on that.

Reddit stocks

Could short selling be a buy signal? Well, over in the US, we have seen GameStop and AMC rally after a coordinated buying effort organised through Reddit (and other platforms) — this was in response to heavy short selling against those stocks.

UK stocks do not seem to gain the traction online that their US counterparts do, so I do not think it is likely that these five could become ‘Reddit stocks’. It is not impossible, though — Cineworld and AMC do have a lot in common, after all. But even if the combination of heavy short selling and heightened online chatter around a stock could be interpreted as a buy signal, it would appear to be a short-term one.

The post The 5 most heavily shorted UK stocks appeared first on The Twelfth Magpie.

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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Before investing, I think it’s a good idea to check which companies are attracting the most interest from short-sellers. For newer readers of The Motley Fool UK, these are traders who place bets that the share prices of certain companies will fall. It’s risky stuff — the potential losses are limitless — so those that do it need to be very confident that they’re on to a good (or bad) thing. What’s interesting right now is that the most-bet-against stock is actually from the FTSE 100. 

Revealed – the most hated FTSE 100 stock

Supermarket giant J Sainsbury (LSE: SBRY) is currently attracting more short-selling interest than any other London-listed stock according to shorttracker.co.uk. To put this in perspective, second place goes to deeply-indebted cinema chain Cineworld.

At first glance, this looks strange. After all, the FTSE 100 member’s share price hasn’t done badly in recent months. Those investors who put Sainsbury’s in their shopping basket around the time that positive news on vaccines was announced would be sitting on a gain of around 40%. Even those who bought at the beginning of March would have seen their holdings rise 20% in value. 

So, why is this happening? There are a few potential reasons.

First, it’s possible that Sainsbury’s sales could be about to moderate. The great reopening of the UK reduces the need for shoppers to buy in bulk when they visit stores or place online orders. While the latter won’t fall off a cliff, the lifting of restrictions might play back into the hands of competitors such as Aldi that don’t offer such a service.

Second, Sainsbury’s CEO Simon Roberts recently reflected on how “a lot of uncertainty” following Brexit is impacting on the company’s operations in Northern Ireland. Since leaving the EU, some food products have struggled to make it to its 13 stores due to complex border requirements. This has only added to the FTSE 100 company’s costs. 

Another thing worth bearing in mind is that Sainsbury’s net debt is almost at the same level as its entire market capitalisation. Sure, the defensive nature of its industry means investors shouldn’t automatically panic. However, the last year has served as a useful reminder of the importance of having a resilient balance sheet. 

So, J Sainsbury could be about to tumble?

Near-term, it’s very hard to say what will happen. We can’t predict future share prices with any certainty. Nor can we know for sure whether the short interest will increase or decrease going forward. 

One thing to bear in mind, however, is the recent jump in the valuations of heavily shorted stocks in the US. Although the reasons for this will vary, it does show just how quickly a situation can reverse if there’s a short squeeze. For Sainsbury’s, a catalyst might be an earnings surprise. It next reports on trading in July. 

It’s also worth noting that ex-FTSE 100 member and industry peer Morrisons also features in the top 10 most-shorted stocks. This indicates that traders are pretty bearish on the sector as a whole.

Bottom line

As a growth investor, I’m not really interested in the grocery space. If I were looking to get involved though, my favourite pick remains market-leader Tesco. Interestingly, there’s barely any short interest in this FTSE 100 stock.

The post Wow! This FTSE 100 company is the UK’s most hated stock appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Morrisons and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should I get involved like other UK investors or steer clear? Here’s my take.

Why is AMC stock flying?

It all seems to be down to what’s known in the business as a short squeeze. This is where previously unpopular stocks are heavily bought, forcing those who were betting the share price to fall to hastily exit their positions. This involves buying back stock they previously ‘sold’ which, in turn, causes the share price to lurch violently upwards. 

Naturally, there’s a catalyst for all this buying pressure. The huge rise seen in the value of AMC stock over the last week originates from the popular Reddit subgroup WallStBets. By coordinating their buys and pumping the stock on social media, this community (which boasts a staggering 10 million members) has succeeded in creating huge losses for hedge funds that think the company will continue to struggle. Last Thursday, it was the most actively traded stock on the entire New York Stock Exchange. 

If all this sounds familiar, it’s because we’ve been here before. In January, the value of AMC stock pretty much ten-bagged. The share price of video game retailer GameStop also soared, as did those of companies in the cannabis space. With gains like this, who wouldn’t be tempted to grab a slice of the action?

Buyer beware

Investors are routinely reminded that ‘past performance is no guide to future returns’. This is, of course, perfectly sensible advice. Even so, I do think history can offer us some ideas about what might happen next.  

Having soared to $347 towards the end of January, Gamestop stock tumbled to just $40 a few weeks later. It’s now back at $222. This shows just how volatile share prices can get when they’re influenced by little more than social media fanfare. I think we could see a similar scenario unfold from here. Anyone buying now could do very well. Or they could lose their shirt.

To really understand what I might be taking on, I also need to look at AMC’s fundamentals. And I don’t like what I see. Based on Friday’s close, AMC now commands a valuation of almost £12bn. That looks excessive when the company’s outlook is considered.

Like London-listed Cineworld, the company faces a myriad of challenges going forward. In addition to the uncertainty surrounding the coronavirus, AMC must also contend with the threat of more people streaming new movies at home. Yes, the current slate of films is encouraging but I also need to remember that success is never guaranteed. Studios can’t know in advance whether they will manage to recoup costs and cinemas can’t predict revenue and profits with much certainty. This is why UK fund managers such as Terry Smith avoid the industry.

Steering clear

Can money still be made by trading AMC stock? Very possibly. But I’m an investor, not a trader. Consequently, I think there are far less risky options out there for people like me. If I were to get involved, it would only be with money I could afford to lose. 

The post UK investors are still buying AMC Entertainment stock. Should I? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since the end of January, the AMC (NYSE:AMC) share price has been a hot topic among retail investors across the world. Subject to short squeeze deliberation triggered by the Gamestop saga, retail investors have been banding together against hedge fund short positions.

However, while many investors are hoping a short squeeze could send the AMC share price rocketing, I also like the look of this stock’s long-term position.

AMC short squeeze history

Firstly, let’s clear up exactly what a short squeeze is. In a nutshell, shorting a stock entails borrowing shares from a broker, betting their price will go down. These shares are then returned at the lower share price, and the difference is pocketed as profit. It is usually done by big hedge funds who take out multi-million short share positions.

However, if the price doesn’t go down, these hedge funds find themselves in big trouble. This is because short sellers exit their positions with buy orders. If these are executed at a higher price than they were borrowed for, share prices go through the roof.

In the case of AMC, things kicked off in late January soon after the Gamestop short squeeze. Retail investors quickly noticed 24% of AMC’s floated shares were held in short positions, so targeted it. By the time markets closed on 27 January over 1bn shares had been traded and the share price inflated over 300%!

There is speculation of another short squeeze as over 37.3m of the 490m floated shares are shorted. In addition to this, the AMC share price has been following an extremely bullish trend, up 42% in the past 30 days. This does point towards the possibility of another short squeeze.

AMC share price future

Though a short squeeze may drive up prices in the short run, there are also reasons why I am bullish on AMC’s long-term value. The cinema chain was decimated by Covid-19 closures, driving down revenues. However, the firm reported that as of March 2020, 527 out of its 589 US theatres were back open. This is great news as boosted capacity means revenues will start to increase again.

In Europe, however, only 27% of cinemas were reported open in the firm’s Q1 results. While this may seem bad in the short term, as Covid-19 restrictions ease across the continent, capacity will continue to grow, driving up revenues further.

CEO Adam Aron highlighted that bankruptcy was also now completely off the table, after raising over $917m of new equity and debt capital. This puts AMC in a strong financial position moving forward past the pandemic.

However, with the streaming industry growing at an accelerated rate, cinemas face stiff competition. Streaming subscriber numbers surged 34% in 2020, with a big part of this attributable to the pandemic. The industry is expected to keep growing by over 20% year-on-year, as companies like Netflix and Disney increase in popularity.

What I’m doing now

As a current investor in AMC, I’m trying to look past the short squeeze speculation. I prefer to invest looking at the long-term value of a stock. I like the outlook for AMC as the cinema is finally opening its doors to customers again. The fact bankruptcy is out of the picture now is a plus too. Therefore, I will be holding for the long term.

The post Why I’m looking beyond the short-term AMC share price appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Dylan Hood owns shares in AMC Entertainment Holdings. The Motley Fool UK owns shares of and has recommended Netflix and Walt Disney. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s not hard to see why this real estate investment trust is so despised. With retail sales still sluggish as a recession bites, the owner of sites such as Highcross in Leicester and Victoria in Leeds is feeling the pain.

A few weeks ago, the firm revealed that just 41% of rent had been collected over its fourth quarter. This was lower than the 59% collected for Q3. It’s also a world away from the 97% achieved in Q1.

The longer the pandemic persists, the more pressure this puts on Hammerson’s balance sheet. Can another cash call be far away?

More hated than Hammerson

Trading at 20p a pop, shares in Hammerson look like a classic value trap. Even if ‘bricks and mortar’ retail is able to recover after the coronavirus subsides, the huge growth in online shopping shows no signs of abating. Factor-in recent management issues and the mid-cap looks to me to be more trouble than it’s worth.

Having said this, two FTSE 100 stocks — educational products and services provider Pearson (LSE: PSON) and supermarket Sainsbury (LSE: SRBY) have even bigger short positions.

Have the valuations of these top-table titans dropped far enough to now make them bargains for patient Foolish investors? 

Uncertain outlook

Pearson was a favourite with the shorting community long before the coronavirus arrived. Even now, it’s still the sixth most hated stock on the market according to shorttracker.co.uk. That seems fair based on recent trading.

Earlier in October, the self-styled ‘world’s learning company’ said that sales had declined by 14% over the first nine months of 2020 due to the closure of test centres and schools. Revenue in the UK was particularly hard hit by the cancellation of exams.

With “larger than usual uncertainties” likely to be felt in Q4, Pearson could only say that trading for the rest of 2020 would be “broadly in line with market expectations“. That’s hardly bullish. However, one could argue this is already priced-in.

Shares in Pearson currently trade on a little less than 13 times forecast FY21 earnings. That could make it a decent contrarian buy, especially as the FTSE 100 company said that online learning sales had helped to soften the blow from the pandemic. I’d certainly be more bullish on Pearson than I would on Hammerson.

Cheap for a reason

You might expect the UK’s second-biggest supermarket to be in something of a purple patch. After all, the coronavirus confined us to our homes earlier in the year. There’s a possibility of it doing the same again before 2020 ends. 

It would seem traders don’t agree. At the time of writing, Sainsbury is the eighth-most shorted stock on the market.

A forecast price-to-earnings (P/E) ratio of just under 11 suggests the shares are a bargain but I’m not so sure. As well as having to cope with competition from the German discounters and the Ocado/M&S tie-up, there’s a truckload of debt on the balance sheet. Margins are wafer-thin too.

Even if/when a vaccine to Covid-19 is found, I can’t see Sainsbury bouncing back to the same extent as other stocks. With dividends on hold, I’d steer clear.

The post These FTSE 100 shares are more hated than Hammerson. Are they too cheap for me to ignore? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cineworld shares: a horror story

You probably know that 2020 has been something of a horror show for the once-mighty company. It was priced around 220p a pop back in January. But Cineworld shares tumbled 95% to just 21p by March as the coronavirus ravaged the globe and lockdowns were enforced.

Some believe the worst to be over. Broker Peel Hunt, for example, recently slapped a price target of 180p on the stock! But I’m less enthusiastic for now. 

True, many of the company’s sites have now reopened. However, there’s still a dearth of new releases. Likely blockbusters (Top Gun 2, James Bond) have had their release dates put back as studios seek to maximise their investment returns.

News that movie-goers must wear masks when visiting is another setback. Why bother with a trip out when you can have a more comfortable experience via Netflix or Amazon Prime at home?

Ominously, Cineworld shares also remain among the most shorted on the London stock market. The only company more hated is Hammerson — the shopping centre owner-manager. When you consider just how much debt the former has on its books, this isn’t surprising.

Yes, any remotely positive comments from management on the company’s outlook next month could see Cineworld shares rally as shorters are ‘squeezed’ and forced to buy back in. With so much working against it right now, however, there are surely far easier ways of making money on the markets.

A better bet…

Cineworld shares aren’t the investment that’s given holders a rollercoaster ride in 2020. Fast-fashion behemoth Boohoo‘s (LSE: BOO) share price has been jumping all over the (online) shop thanks to an odd mixture of soaring sales and negative publicity.

Interim numbers are due on 30 September. I suspect another big move is on the cards. If recent sales momentum has been maintained, this should be in an upwards direction.

Back in June, the company reported “very strong trading and operational performance“. Despite the coronavirus crisis, it now expected to beat previous market expectations for the full-year. What a contrast to the state of affairs at Cineworld!

On the other hand, accusations of poor pay and working conditions in factories supplying clothes to the company have dented BOO’s reputation. An independent review is in progress but it’s clear investors will be looking for an update on what steps it has taken to rectify things. The share price could be punished again if this is deemed insufficient. 

As a holder, I’m clearly biased on Boohoo’s prospects. Notwithstanding this, I’d be surprised if recent woes prove anything more than temporary. Similar cases have involved retail titans such as Amazon, Associated British Foods (Primark) and JD Sports. They show that no business is beyond reproach, particularly those with links to the rag trade. They’ve all since recovered.

As long as issues are swiftly rectified, a sustained rise in Boohoo’s price looks far more likely than it is for Cineworld shares. 

The post Here’s why I think Cineworld and Boohoo are UK shares to watch in September appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in boohoo group. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Associated British Foods and boohoo group and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Now, the hedge funds don’t always get it right. Not every heavily shorted stock falls in value. Yet quite often, these sophisticated investors do get it right. Just look at some of the FTSE companies that have been shorted heavily by the hedge funds in recent years – Carillion, Thomas Cook, Debenhams… all of these companies turned out to be shocking investments.

With that in mind, today I want to highlight two FTSE 250 stocks that are being heavily shorted right now. Given the high level of short interest here, I’d steer well clear of these companies.

Hedge funds smell blood here

According to shorttracker.co.uk, the most-shorted stock on the London Stock Exchange is currently FTSE 250 real estate investment trust Hammerson (LSE: HMSO). It has short interest of 12.6%, with nine funds shorting it.

It’s not hard to see why the hedge funds don’t like this stock. Hammerson owns and operates a number of prime shopping centres in the UK and Europe. Its portfolio currently contains 21 flagship destinations, eight retail parks, and 20 premium outlets. There are two issues here. Firstly, the forced closure of non-essential retail stores has devastated rent collections. Last week, Hammerson advised that it had collected just 16% of rents in the UK in the last quarter. Secondly, the coronavirus lockdown has changed the way we shop. Going forward, a lot more of our shopping will be done online. That could impact the company’s operating environment in the future.

Hammerson recently negotiated some headroom with its creditors until 31 December 2021. It also advised that it is confident that rent collection rates will improve materially in the near term. I’d still avoid the FTSE 250 stock though. The hedge funds clearly smell blood here.

A FTSE 250 company seeing major challenges

Another FTSE 250 stock that is being heavily shorted right now is Royal Mail (LSE: RMG). It’s currently the third most shorted stock on the London Stock Exchange according to shorttracker.co.uk. It has short interest of 9.1% with seven funds short.

Again, it’s not hard to see why the hedge funds don’t like this FTSE 250 stock either. This a company with some serious challenges to work through.

In its recent full-year results, issued on 25 June, Royal Mail provided two potential scenarios of how the business could perform in 2020-21. In the first scenario, which assumed a UK GDP decline of 10% for the period, it said revenue from its UK operations could be between £200m to £250m lower year-on-year. Meanwhile, in the second scenario, which assumed a UK GDP decline of 15%, it said UK revenue could be between £500m to £600m lower year-on-year. The company also said that it expects its UK division to be “materially loss-making” in 2020-21.

Royal Mail is a stock I’ve been bearish on for a while now. The high level of short interest here just reinforces my view. I’d steer well clear of this FTSE 250 share and look for more attractive investment opportunities.

The post FTSE 250: I’d avoid these shares because hedge funds expect them to fall appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should markets quickly give up the positive momentum seen over the last couple of days, however, there’s one stock I definitely won’t be interested in buying, regardless of how cheap it becomes.  

Off-screen drama

Since a trip to the movies involves sitting for hours in an enclosed space with popcorn-munching strangers, it’s no surprise the share price of cinema operator Cineworld (LSE: CINE) has been hit hard following the coronavirus outbreak. Yesterday, the stock closed at 140p — roughly 20% less than a month ago.

It’s certainly possible things could get worse before they get better. A decision by the UK government to restrict ‘public gatherings’ in the event of a huge rise in those testing positive would be extremely negative for the company. Closing cinemas would surely be required, as it was in China.  

Even if it doesn’t come to this, the ongoing disruption to the cinematic calendar is likely to impact earnings in the short term. Yesterday, it was announced the release date for the new James Bond film (No Time to Die) has now been put back from April to November. A couple of weeks ago, filming of the latest Mission Impossible installment was brought to an abrupt halt in Italy.

Temporary or otherwise, I’d still be reluctant to snap up Cineworld’s shares for another three reasons.

Loaded with debt

First, the amount of debt the company now carries as a result of its decision to buy US operator Regal and Canadian business Cineplex remains significantly more than the current value of Cineworld itself! Bar a few exceptions, I’m not a fan of debt-laden companies at the best of times, let alone when markets are this fragile. 

Second, the popularity of streaming services, such as Netflix and Amazon Prime, shows no signs of falling (and is likely to soar if we’re all forced into self-isolation).  The arrival of Disney’s ‘Plus’ offering later this month will mean yet more competition for consumers’ eyeballs. Monthly subscriptions costing far less than a single trip to the cinema and offering a huge variety of content leave the FTSE 250 company looking very vulnerable, at least in my opinion.

Third — and arguably as a result everything mentioned so far — Cineworld continues to attract significant attention from short sellers (those who bet on a company’s share price falling). Right now, it’s the third most shorted stock on the London Stock Exchange, according to shorttracker.co.uk.

Highly-researched short sellers aren’t always right, but anyone owning stocks they target must be very sure of their reasons for staying positive. 

Worth a punt?

Full-year numbers from Cineworld are expected on 12 March. Since these will relate to trading in 2019 only, it’s inevitable investors will be more focused on comments from management regarding the company’s outlook, in light of the coronavirus crisis.

At a little less than six times forecast earnings, you might argue a lot of negativity is already priced in. With everything so up in the air, however, I think Cineworld looks a classic value trap.

The post Fear a ‘dead cat bounce’? I’d avoid this dirt-cheap FTSE 250 stock appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.