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Jun 19, 2017

S3 Research: June 12th – June 16th Best and Worst Short Performers

Every week, S3 tracks short sellers’ equity positions in the US, revealing the trades that delivered positive results or missed the mark.  After tracking $902 billion worth of short positions, the above charts show the lists of this week’s top five best and worst performing shorts.

Top 5 Best Performing Shorts:
• AAPL: After its stock price dropped 4.5% last week, Apple was the best performing short for a second week in a row, netting another $411 million for short investors in just one week, and $811 million in the last two weeks. In the aftermath of the tech sell-off, Apple’s share price dropped more than any of the other FAANG stocks. CIO of Solaris Group, Tim Grishkey, believes that part of this is due to the fact that anticipation of the iPhone 8 has started to become stale. Despite this, Apple is still up nearly 20% year to date. 
• KR: Kroger’s price dropped 27.6% last week and finished at a 3-year low of $22.29, making it the second most profitable short of the week despite having a much lower short interest than any other company on our list. Friday’s news of Amazon’s disrupting acquisition of Whole Foods drove prices down for Kroger, Costco, Wal-Mart, Target, and many retailers and distributors, as investors believe Amazon will become a disruptor in the food and staples sector.
• NFLX: In a continuation of the tech sell-off, Netflix dropped another 3.6% last week.  Though it has been facing increasing pressure from competition such as Hulu, Amazon, and Google, it is still the industry leader in streaming. After hitting a year-to-date high of $165.88 on 6/8, Netflix was a target for long sellers as tech stocks declined. Long shareholders sold some of their stock to lock in unrealized profits generated from their late May and early June run-up. Netflix’s share price drop was not due to shorts selling – but due to longs selling.
• TGT: Target fell by 7.5% last week, closing the week at $52.61. The majority of this drop occurred on Friday following the news of Amazon’s acquisition of Whole Foods. Analysts are expecting that Amazon will slash grocery prices, which will eventually cause competitors to follow suit and lower margins industry wide. Retail food sales make up a fifth of Target’s total sales, and any price competition from the Amazon-Whole Foods mash-up will lower Target’s already thin margins.
• WMT: Wal-Mart, often regarded as Amazon’s biggest competitor, fell by 5% last week, with 4.6% of this occurring Friday following the news of the Amazon-Whole Foods acquisition. While Wal-mart continues to focus on expanding its online retail footprint, with over 60% increase in online sales in its last quarter, any positive Amazon news has a negative impact on Walmart’s stock price. This may end up a battle of PE’s – Amazon with its turbocharged growth rate and a 180+ P/E versus Wal-mart’s more stable revenue flows, a 2.5% dividend yield and a P/E just north of 17.               

Bottom 5 Worst Performing Shorts:
• TSLA: Tesla, the largest equity short in the U.S. market at $10.87 billion, hit an all-time high of $380.66 last Wednesday and finished the week on a 3.5% increase. It is now the worst performing U.S. short for the fourth week in a row as Tesla’s share price is up 73% year to date. Recently, Tesla shares were upgraded to buy from hold by Berenberg, citing the company’s disruptive and monopolistic potential in the auto industry. On Wednesday, Tesla’s 2017 Model X received a 5-star crash rating from the NHTSA, with a 5-star rating in every crash test category and sub-category. This was the highest safety rating ever given to an SUV, and the market reacted immediately.
• WFM: Perhaps the single most talked about company last week following its acquisition by Amazon on Friday, Whole Foods enjoyed a 29% surge in share price, which cost short sellers $270 million on Friday alone. This could very well be the future of grocery shopping as Amazon looks to expedite the entire process through mass automation and grocery delivery service.
• GE: GE rose $1.02/share last week on its announcement that the current president and CEO of GE Energy Connections, Russell Stokes, has been named president and CEO of GE Power. Short positions lost $98.6 million for the week. The company is optimistic and enthusiastic about its new leadership, believing that Stokes will be able to leverage his experience as CEO of Energy to revamp GE Power through creating a common strategy and aligning customer bases.
• HRB: H&R Block rose by just over 13% last week following its release of its Q4 earnings report. According to the report, Q4 EPS was $3.76, well above the estimated $3.53. Analysts changed their target price to $29.12 from $24.71 the week before, a 17.85% increase. Short sellers lost $87.6 million on the week. 
• OMER: Biopharmaceutical developer Omeros, rose by 38.8% last week after announcing that the FDA had granted breakthrough therapy designation to OMS721, its treatment for Immunoglobulin A nephropathy. This drove its stock to 30% above the Bloomberg consensus one year target price, increasing the company’s gain to 91% in the past 52 weeks. 

Want deeper insight into the above analysis? Contact:
Head of Research, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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