Given that the best and the brightest work for hedge funds, we at Insider Monkey believe that keeping track of hedge fund activity in stocks is important. Seeing as hedge funds often comprise much of the short interest for many stocks, we have put together a list of the most covered short stocks in recent weeks.
Without further ado, let’s take a closer look at the hedge fund short covering activity in the shares of Oclaro, Inc. (NASDAQ:OCLR), Hope Bancorp Inc (NASDAQ:HOPE), Linear Technology Corporation (NASDAQ:LLTC), Mattress Firm Holding Corp (NASDAQ:MFRM), and CommerceHub Inc (NASDAQ:CHUBK), and try to uncover what may have led to that shift in momentum.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
Short Interest in CommerceHub Drops
According to our data, CommerceHub Inc (NASDAQ:CHUBK) bears pared their short positions by almost 50% from July 29 to August 15. The shares on borrow for the stock fell to 584,719 in the middle of August from over 1.1 million at the end of July. Shares of CommerceHub Inc (NASDAQ:CHUBK), an integration services company, have rallied by over 7% on the back of broader market strength ever since it was spun off from Liberty Interactive Group (NASDAQ:QVCA) in July. Given its recent entrance onto the public markets, there is no 13F hedge fund data concerning the stock.
Buyout Causes Mattress Firm Bears to Flee
Steinhoff International Holdings’ agreement to buy Mattress Firm Holding Corp (NASDAQ:MFRM) for $64 in cash per share on August 8 likely caused a lot of shorts to cover. In fact, according to the Wall Street Journal, short interest in the stock fell by 52.6%, or 3.29 million shares from July 29 to August 15, to 16.8% of the float. Given how closely Mattress Firm Holding shares trade to that $64 mark, the market is rather confident that the merger will successfully close by the anticipated date of on or before the end of the third quarter. The number of hedge funds that we track with holdings in Mattress Firm Holding Corp (NASDAQ:MFRM) fell by three quarter-over-quarter to 15 at the end of June.
We’ll check out three more stocks which were being aggressively covered in early-August on the next page.
Linear Shorts Cover Due to Merger
More than half of Linear Technology Corporation (NASDAQ:LLTC)‘s slightly over 9.00 million shares on borrow were covered from July 29 to the middle of August after the tech company announced that it had agreed to merge with Analog Devices, Inc. (NASDAQ:ADI) on July 26. According to the terms of the agreement, Linear shareholders will receive $46 in cash per share and 0.2321 shares of Analog Devices for each share of Linear that they own. The transaction is expected to be immediately accretive to Analog’s EPS and free cash flow. Synergies from the deal are expected to near $150 million annually within 18 months of the deal closing. David Blood and Al Gore‘s Generation Investment Management raised its holding in Linear Technology by 1% to 12.3 million shares during the second quarter.
Hope Bears Losing Hope
Due to the lack of market panic after Britain’s decision to leave the EU on June 23, bears in Hope Bancorp Inc (NASDAQ:HOPE) covered their shorts to the tune of 53.9%, or 3.27 million shares during the July 29-to-August 15 period. Given the strong U.S. economy and Federal Reserve Chairwoman Janet Yellen’s statement that the case for rate hikes has “strengthened,” the bear case for Hope Bancorp Inc (NASDAQ:HOPE) looks less appealing. If interest rates rise, Hope Bancorp’s return on capital will rise too.
Oclaro Shorts Give Up
Oclaro, Inc. (NASDAQ:OCLR) was the most covered short stock from the end of July to the middle of August, as shorts pared their position by an astonishing 72.5%, or 20.2 million shares during that time. After all the covering, only 7.3% of the company’s float was on borrow on August 15. Shares of the micro-cap are up by an impressive 141% year-to-date due to increased investor confidence and a string of solid earnings reports. 29 funds in our system were long Oclaro, Inc. (NASDAQ:OCLR) as of the June 30 13F reporting period, down by four funds quarter-over-quarter.