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Article / 31 October 2012 at 8:37 GMT

10 most shorted US stocks – JCP joins the list, VRA 73.5% shorted

Sverrir Sverrisson Sverrir Sverrisson
Partner - Senior Portfolio Manager / PP Capital Asset Management
Denmark

Most shorted stocks

It is time to deliver the 10 most shorted stocks as of mid-October. Last month we saw Skullcandy sitting at the top of the list, and no one seemed to challenge the stock for the questionable honour of being the most shorted stock. Now however, we have a new leader of the pack – Vera Bradley Inc (NASDAQ:VRA). Skullcandy has moved to second place.

US Most Shorted Stocks

About the new leader
Vera Bradley is a specialty retailer focusing on accessories for women. Ever since its 2010 initial public offering (IPO), Vera Bradley has had a large chunk of its floating shares sold short. At its highest point, in January this year, short sellers had built up a short position accounting for roughly 92 percent of its float. 

VRA - No. of shares sold short

While the short interest in Vera Bradley increased from 43 percent to 73.1 percent in one month, its stock price gained 20 percent over the same period. The change in short interest is not only due to a massive increase in the number of shares shorted, but also a significant decrease of floating shares in the market (down from 20 million to 13 million due to insiders' transactions of shares).

Had the float stayed the same, the short interest would only have gone up to 47.5 percent, placing Vera Bradley in seventh place on the list and Skullcandy had remained on top.

Vera Bradley has been on a roll gaining 36 percent in value in the past three months. As the stock price has surged, investors have added 1 million shares to the pool of short positions.

JC Penney now officially one of the most hated stocks
Only one stock was added to the most hated stocks list this time: JC Penney (NYSE:JCP). JC Penney is currently going through an extreme makeover, led by Apple’s former head of retail Ron Johnson. JC Penney replaces Lihua International (NASDAQ:LIWA) which sat in 10th place last month.

For the past month, JCP has been a topic of heavy discussion as Ron Johnson does what he can to modernise the retailer. According to short sellers, and pretty much everyone who does not have a long position in the stock, Ron is destined to fail!

JCP had warned that its quarterly results throughout this year were not going to be pretty, and that is exactly what happened. Nevertheless, the terrible results in JCP’s Q2 did not cause a crash in the stock price. The stock is currently down 27.5 percent YTD and the short interest implies that investors expect further downside. The fact that the stock price is not being heavily affected by poor quarterly results indicates that a successful turnaround is already priced into current valuations, at least partially. 

JCP - Sales Growth Y-o-Y

JCP reports its Q3 results on November 9. Keep a close eye on the company's sales trend as it is the key indicator of a successful implementation of its new strategy. Once the sales trend stabilises, this will be perceived as JCP being on its way to turning things for the better. It is however unlikely to happen during the upcoming earnings call. With the Christmas holiday season just around the corner, the most lucrative quarter for most retailers, it will be interesting to see whether shoppers choose JCP as their favourite for shopping or if sales continue to deteriorate.

Largest changes in short interest
The largest changes in short interest for the period came from several ‘no-names’. The most known stocks on the list are probably United Parcel Service (NYSE:UPS), with a 52 percent decrease and WellPoint (NSYE:WLP) with an 89 percent increase in short interest, and a total short interest of 1.2 and 3.7 percent respectively.

Largest Changes in Short interest

For historical information on short interest, see the following:

For related short selling stories, see the following:

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