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Msg  110510 of 110939  at  8/25/2021 12:02:50 PM  by

marpincan


Short sales - Some well known names on the list


 

Short sales on the TSX: what bearish investors are betting against

Larry MacDonald

According to academic studies, stocks targeted by short sellers tend to underperform, but may see their prices periodically shoot upward in short squeezes. Monitoring short-selling activity can thus help with identifying torpedo and rocket stocks. To this end, the Globe and Mail presents the latest instalment of the Short sales on the TSX column, covering the month to mid-August.

Companies with the highest percentage of float sold short

Let’s begin with the percentage of float (freely trading shares) sold short, as highlighted in the table, Top 20 companies by percentage of float sold short. The data for the tables in this article are sourced from data-analytics firm, S3 Partners, unless otherwise noted.

Jumping onto the table for the first time and claiming the No. 1 spot with 47.3 per cent of its float sold short is BriaCell Therapeutics Corp., a Vancouver-based biotech company developing treatments for managing cancer. In second place with 32.3 per cent of its float short is another company appearing for the first time: Worksport Ltd., a Concord, Ont.-based manufacturer of tonneau covers that generate onboard solar power for pickup trucks.

Top 20 companies by percentage of float sold short (Aug. 20)

COMPANYTICKER% OF FLOAT SOLD SHORT
Briacell Therapeutics Corp.BCT-T47.3
Worksport Ltd.WKSP-Q32.3
Air CanadaAC-T30.9
Aurora Cannabis Inc.ACB-T24.1
Dirtt Environmental SolutionsDRT-T22.4
Hexo Corp.HEXO-T21.2
Alpha Pro Tech Ltd.APT-A20.5
Village Farms InternationalVFF-T18.2
Aurinia Pharmaceuticals Inc.AUPH-Q17.8
Lithium Americas Corp.LAC-T17.0
Sundial Growers Inc.SNDL-Q14.4
iShares S&P/TSX 60 ETFXIU-T14.2
Exco Technologies Ltd.XTC-T13.6
Canopy Growth Corp.WEED-T13.1
Tucows Inc.TC-T13.1
Canadian Solar Inc.CSIQ-Q12.8
Organigram HoldingsOGI-T12.7
Westshore Terminals Corp.WTE-T12.5
Cronos GroupCRON-T12.3
Great West Lifeco Inc.GWO-T11.8

Data Source: S3 Partners

The risk of a short squeeze is elevated if there has been a strong appreciation in stock price and short sellers are feeling pressure to buy back the shares they borrowed. Shorted companies on the table with strong price appreciation are Lithium Americas and Westshore Terminals.

Other factors contributing to squeezes are high stock-lending rates and days-to-cover ratios. Companies with readings over 30 for either measure were: BriaCell Therapeutics, Air Canada, Exco Technologies, Tucows and Westshore Terminals.

Insider trades (source: INK Research) can also assist with the interpretation of short positions. One of the shorted companies had heavy insider buying: Exco Technologies, a supplier of dies, molds, components and assemblies to the automotive industry. The $5.4-million in purchases by company directors over the past year provides a caveat to short sellers’ bearishness.

Insider selling is a weaker signal but it was quite substantial over the past year in cannabis stocks, particularly: Cronos Group ($43.1-million), Canopy Growth ($11.3-million) and Village Farms ($59.5-million). Outside the sector, there was significant insider selling in Air Canada ($2.5-million), Lithium Americas ($6.0-million) and Tucows ($2.7-million).

Companies with the largest increases in short positions

Large increases in short interest can be another bearish signal. The table, Top 20 companies with significant 1-month increases in short sales, presents the top 20 increases in the dollar value of short interest over the month ending Aug. 20.

Worth highlighting are the many chartered banks appearing on the table. Several other companies from the financial sector also show up, notably insurance companies and alternative asset manager Brookfield Asset Management. Outside of the finance sector, two companies not only had large monthly increase but also high percentages of float sold short: Lithium Americas and Aurinia Pharmaceutical.

Top 20 companies with significant 1-month increases in short sales (Aug. 20)

COMPANYTICKERINCREASE IN SHORT POSITION OVER LAST MONTH ($MIL)% OF FLOAT SOLD SHORT
Toronto-Dominion BankTD-T$545.53.9
Manulife FinancialMFC-T$392.13.5
CN RailwayCNR-T$389.43.6
CIBCCM-T$353.35.2
Bank of MontrealBMO-T$336.42.8
BCE Inc.BCE-T$325.64.1
Bank of Nova ScotiaBNS-T$268.14.3
Brookfield Asset ManagementBAM-A-T$197.62.2
National Bank of CanadaNA-T$174.54.6
CP RailwayCP-T$165.12.7
Thomson Reuters Corp.TRI-T$152.42.3
Royal Bank of CanadaRY-T$147.51.0
Telus Corp.T-T$131.74.0
Lithium Americas Corp.LAC-T$106.317.0
Power Corp.POW-T$103.46.2
Aurinia Pharmaceuticals Inc.AUPH-T$96.417.8
Emera Inc.EMA-T$92.95.5
TFI International Inc.TFII-T$83.82.4
Lululemon AthleticaLULU-N$83.21.6
Sun Life FinancialSLF-T$80.53.5

Data Source: S3 Partners

Companies with high borrowing rates for their shares

Academic researchers say it is important to check the loan rates that short sellers would have to pay to borrow stocks, since they can provide signals as well. Hence the creation of the table Top 15 lending rates for Canadian-listed stocks, which lists the highest lending rates for all stocks trading on the TSX.

Top 15 lending rates for Canadian-listed stocks (Aug. 20)

COMPANYTICKERANNUALIZED BORROW FEE (%)
CGX Energy Inc.OYL-T105.8
Step Energy Services Ltd.STEP-T81.3
Tanzanian Gold Corp.TNX-T75.2
Electrovaya Inc.EFL-T74.4
Medallion Resources Ltd.MDL-T71.8
Tectonic Metals Inc.TECT-T71.1
Chesswood Group Ltd.CHW-T62.5
Erdene Resource Corp.ERD-T58.3
Calfrac Well Services Ltd.CFW-T56.2
Batero Gold Corp.BAT-T54.3
Resverlogix Corp.RVX-T52.4
Pharmacielo Ltd.PCLO-T50.2
Maple Gold Mines Ltd.MGM-T46.3
Sativa Wellness Group Inc.SWEL-T46.1
Greenpower Motor Co Inc.GPV-T45.3

Data source: iborrowdesk.com

Many investors, however, are looking to trade stocks with larger market caps, so let’s screen the more than 220 companies in the S&P/TSX Composite Index and list the ten highest in the table 10 highest borrow rates for stocks in the S&P/TSX Composite Index. At the top sits Brookfield Business Partners L.P with a borrow rate of 12.6 per cent. It is headquartered in Bermuda and functions like a private equity firm that buys, restructures and sells businesses.

Ten highest lending rates for stocks in the S&P/TSX Composite Index (Aug. 20)

COMPANYTICKERANNUALIZED BORROW RATE (%)SHORT INTERESTFLOAT SOLD SHORT (%)
Brookfield Business Partners LPBBU-UN-T12.6$4,251,5680.1
Endeavour SilverEDR-T7.3$24,254,0663.2
Goeasy Ltd.GSY-T7.1$59,725,0683.3
Westport Fuel Systems Inc.WPRT-T3.6$3,539,3140.6
Sprott Inc.SII-T2.8$11,673,5801.5
Equitable GroupEQB-T2.8$23,253,7001.1
Brookfield RenewableBEP-UN-T2.3$23,908,0210.2
Aurora Cannabis Inc.ACB-T2.3$48,812,2563.8
Osisko Mining Inc.OSK-T2.1$5,251,4050.8
Organigram HoldingsOGI-T1.7$21,746,5933.7

Data source: S3 Partners

Brookfield Business Partners enjoys ready access to capital thanks to the growing trend among institutional and wealthy investors to diversifying with alternative assets, such as private equity. However, leverage for Brookfield Business Partners is quite high: as of June 30, total liabilities were US$42.3-billion compared to a market cap of US$3.9-billion.

Note: high short interest or loan rates may not always be a bearish bet on lower prices. They can also reflect hedging or arbitraging operations on convertible securities and other situations.

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