We recently compiled a list of the 8 Stocks with Lowest Short Interest to Buy. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other stocks with lowest short interest to buy.
A report from S3 Partners revealed that the rally in Chinese stocks as a result of stimulus measures cost traders who were betting against the US-listed shares ~$6.9 billion in mark-to-market losses. Benchmark CSI 300 index saw an increase of more than ~22% over the past month. The Nasdaq Golden Dragon index went up by over ~34% during the same period. Much of these increases were seen off the back of policy-easing measures.
S3 Partners went on to say that, before this market rally, short sellers continued to build their positions profitably in the falling market. However, after the rebound, the short selling in the group slowed. Before China announced the stimulus plans, shorting the Chinese stocks was a popular strategy, with several market players going underweight in the sector.
Short Selling in Q2 2024
S3 Partners reported that short interest in the US/Canada markets went up by $57.9 billion, or 5.1%, to $1.20 trillion in Q2 2024. The increase comprised $73.9 billion of new short selling, which was partially offset by a $16.0 billion fall in the mark-to-market value of shares shorted. During the quarter, the sectors that saw the largest increase in short selling were the IT, Industrials, and Communication Services sectors. On the other hand, the Energy sector was the only sector that saw a decrease in shares shorted (short covering).
Short Sellers Reduced Their Positions in This Sector
S&P Global reported that short sellers decided to pull back their bets against consumer staples stocks on the US exchanges during the summer months. This comes amidst the general increase in overall short interest throughout equities. Recent data suggests that the short interest in the consumer staples sector declined to 3.87% at the end of August from 4.16% at the end of May. The decline in short interest against consumer staples stocks might be due to the decline in inflation.
On the other hand, short interest in the industrial sector went up by 21 bps from the end of May to the end of August, rose 20 basis points in the healthcare sector, and jumped 19 basis points in the real estate sector, as per the company. With the expectations of further rate cuts, market experts opine that the consumer staples sector might see sustained demand. The consumer spending resulted in solid Q2 2024 Gross Domestic Product (GDP) growth of 3% (annualized), approximately double the rate of Q1 growth, as per the US Bank.
After the rate cut in September, market strategists recommended going long on consumer discretionary and consumer staples sectors. This is because these sectors are expected to receive a boost as declining mortgage rates might benefit spending, reported Reuters.
Therefore, with the expectations of lower inflation and interest rates, there can be some revival in consumer confidence. This should result in increased spending on staple goods, which might lead to improved performance in the consumer staple sector. As per Evercore, among the S&P 500 sectors, consumer staples and consumer discretionary have seen the best average performance, with both sectors gaining ~14% a year after the rate cut.
Our Methodology
To list 8 Stocks with Lowest Short Interest to Buy, we used a Finviz screener to extract the list of stocks having the lowest short interest. Next, we narrowed down our list to the following 8 stocks having short interest of less than 2%. Finally, the stocks were ranked in the descending of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Short % of Float (as of September 30): 0.80%
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is engaged in developing and supporting software, services, devices, and solutions worldwide.
Wall Street analysts believe that Microsoft Corporation (NASDAQ:MSFT) continues to leverage its healthy position in cloud computing and artificial intelligence to fuel growth. They are quite optimistic about Microsoft’s Azure cloud platform, with acceleration expected in the latter half of 2024. Also, Microsoft Corporation (NASDAQ:MSFT) has been investing heavily in AI computing infrastructure, primarily in housing clusters of GPUs essential for the growing demand in AI compute. Over the long term, the company’s leading position in AI and extensive portfolio are expected to act as potential tailwinds.
While Microsoft’s Office 365 Commercial should continue to aid its growth trajectory, vendor consolidation and ARPU growth through upgrades are expected to act as primary tailwinds. Microsoft Corporation (NASDAQ:MSFT)’s AI strategy and partnerships are also expected to act as key drivers for future growth. Moreover, Wall Street remains optimistic about partnerships with companies like Elastic, potentially aiding in winning government customers and large enterprise penetration.
Microsoft Corporation (NASDAQ:MSFT)’s AI strategy and partnerships should lead to unique monetization opportunities across products such as Azure and CoPilots. Wells Fargo & Company raised its price objective from $500.00 to $515.00, giving an “Overweight” rating on 31st July.
Generation Investment Management, an investment management firm, released its second quarter 2024 investor letter. Here is what the fund said:
“Generative AI’s hunger for power has increased disproportionately with its intelligence. According to one estimate, OpenAI’s GPT-4 required 50 gigawatt hours (GWh) of electricity to train, much more than the 1.3 GWh needed for GPT-3.3 And then AI requires even more power when it is put to use (so called ‘inference’). Some of the latest trends worry us. Microsoft Corporation (NASDAQ:MSFT) appears to be slipping in its ESG goals, with its greenhouse gas emissions rising again last year, as it invests in becoming a big player in AI. It is struggling in particular to curb its Scope 3 emissions in the capital goods category – nowhere more so than in the activity associated with the construction of data centres: both the embedded carbon in construction materials like steel and cement, as well as the emissions from the manufacturing of hardware components such as semiconductors, servers and racks. Google’s emissions have risen by close to 50% in the past five years.
We feel it is worth dwelling on Microsoft for a few moments, since we suspect you will be hearing a lot more about the relationship between AI and sustainability in the coming months. The bottom line is that we continue to see Microsoft as a sustainability leader. In the case of Scope 2 emissions, the company covers 100% of its electricity use with purchases of renewable energy. Crucially, though, the majority of this green energy is directly sourced via power purchase agreements, which bring new renewable capacity to the grid. Microsoft is also committed to operating 24/7 on renewable power by 2030, a policy that will help bring energy storage onto the grid as well…” (Click here to read the full text)
Overall MSFT ranks 3rd on our list of the stocks with lowest short interest to buy. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.