Apple is now the most shorted stock in the market. If Tesla is an example, that’s ascending.
Apple shareholders don’t have to worry that US stocks are most exposed to short cuts. I’m referring to a report from short seller analytics firm S3 Partners that 864 days after the Tesla TSLA,
At the top of this list was Apple AAPL,
He earned that dubious honor. As of September 14, a total of $18.4 billion of Apple stock was shorted, surpassing Tesla’s total of $17.4 billion. That sure sounds like a lot of money betting hard that Apple stock will go down.
Perhaps the first clue that Apple investors don’t need to worry about, however, is Tesla’s battering performance in the market despite it being the most under-shredded list. From April 2020 through September 14, the stock produced a total return of more than 100% annually, according to FactSet, versus 15% for the S&P 500 SPX,
Apple investors can only hope that they outperform the market just as much during the time when the company is the most shorted.
Tesla is just one data point, of course. Jay Ritter told me in an email that the best reason Apple investors aren’t worried is that the massive amount of dollars in shorted shares are “pretty much meaningless.” Ritter is a finance professor at the University of Florida and co-author of one of the most widely cited academic studies on the effects of short-interest investment. He added that he is not currently short for Apple, but short for Tesla.
For short statements of interest to be meaningful, they must be placed in context. A large amount of Apple stock may be short sold in dollars, but the company also has the largest market capitalization of any publicly traded company in the world. Among the most relevant short selling metrics are the shorting ratio (the number of shares shorted expressed as a percentage of the total number of shares outstanding) and the days to coverage ratio (the number of shares shorted divided by the average recent daily trading volume).
According to either of those ratios, Apple is actually one of the fewest stocks short sold. According to FactSet, in terms of short interest rate, Apple ranks 477The tenth A place among the 500 stocks in the S&P 500. In terms of the ratio of days to coverage, it ranks 463research and development place. In other words, what the headlines have promoted as one thing is actually the exact opposite.
Could Short Selling Be Bullish?
Some contrarians may be disappointed to learn that Apple’s short interest rank is too low. This is because they believe that high levels of selling are actually bullish.
The problem with this contradictory argument is that it is wrong, according to Adam Reed, a professor of finance at the University of North Carolina and one of the leading academic experts on the importance of short selling data. In an email, he told me that a strong conclusion from several academic studies is that stocks tend, on average, to underperform the market if they have high short interest rates.
He added that he was not aware of any academic research that found that the absolute dollar value of short-sold shares correlated in any meaningful way with the stock’s subsequent performance.
Bottom line? Apple’s recent #1 ranking on the most underrated list is a lot of sound and fury, which says nothing.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert rating tracks investment newsletters that pay a flat fee to review. It can be accessed at firstname.lastname@example.org
more: These 20 stocks have a short interest of 19% or more, and AMC and GameStop aren’t even in the top half