With the third quarter coming to an end and companies gearing up for the next quarterly results season, there has been a rush among short sellers to cover their positions in several stocks. Taking that into account, in this post, we are going to focus on five NYSE stocks that saw a significant decline in their short interest during the first-half of September. Additionally, we will also discuss what smart money tracked by us thought about these stocks while entering the third quarter.
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).
#5 Dominion Diamond Corp (NYSE:DDC)
– Decrease in short interest in the period between August 31 – September 15 : 40.2%
– Hedge Funds With Long Positions (as of June 30): 14
– Value of Hedge Funds’ Holdings (as of June 30): $53.56 Million
Let’s begin with Dominion Diamond Corp (NYSE:DDC), whose short interest declined by 40.2% to 436,040 shares during the first-half of September. Since Dominion Diamond Corp (NYSE:DDC)’s stock has appreciated by 20% since September 15, one can conclude that traders made a wide decisions by covering their short positions in advance. On September 9, the diamond mining company reported its second quarter results, declaring a loss of $0.39 per share on revenue of $160 million for the period, versus analysts’ expectation of a loss of $0.06 per share and revenue of $196.50 million. During the second quarter, the number of funds from our database that were long Dominion Diamond fell by two, while the aggregate value of their holdings in it fell by $17.08 million.
#4 NextEra Energy Inc (NYSE:NEE)
– Decrease in short interest in the period between August 31- September 15 : 45.4%
– Hedge Funds With Long Positions (as of June 30): 32
– Value of Hedge Funds’ Holdings (as of June 30): $1.20 Billion
On August 29, NextEra Energy Inc (NYSE:NEE) announced that it has reached an agreement with global financial institutions regarding its bid to acquire Energy Future’s Texas-based utility Oncor Electric Delivery. This announcement led shorts to cover their positions in droves, causing the short interest in the stock to fall 45.4% to 1.1% of the company’s float in the next 16 days. Shares of NextEra Energy Inc (NYSE:NEE) made their lifetime high at $131.98 in July and even though they have corrected since then, the stock still is trading up 16.6% for 2016 currently. In order to make its Oncor Electric bid more lucrative for Energy Future’s creditors, on September 19, NextEra Energy revealed that it has hiked its offer by $300 million, raising the cash component of the deal to $4.4 billion from $4.1 billion. The ownership of NextEra Energy among funds covered by us declined by three during the second quarter, but the aggregate value of their holdings in it increased marginally by $9 million.