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Jul 10, 2017

S3 Research: July 3rd – July 7th 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 $899 billion worth of short positions, the above is a list of this week’s top five best and worst performing shorts.

Top 5 Best Performing Shorts:
• TSLA: Tesla has been one least performing shorts for several weeks but short sellers enjoyed their weekend for the first time this summer after Tesla’s stock price fell $48.39, or 13.4%. Tesla’s stock price started its decline after second quarter car sales missed analysts’ projections. Volvo then announced that all of their cars will either be fully or partially electric powered by 2019. The announcement of a major international car maker encroaching on Tesla’s turf was followed up with a disappointing “Acceptable” crash test rating from the Insurance Institute for Highway Safety. Since hitting its year-to-date high’s, Tesla’s stock price has gone into reverse – down 18.8% in less than two weeks.
• ORLY: O’Reilly Automotive fell nearly 21% ($45.89) last week, closing at a two-year low of $172.85 on Friday and generating short investors $385 million in profits. The auto-parts retailer fell short of its 3%-5% same store sales growth projection and Morgan Stanley and Credit Suisse analysts downgraded its price target to $200 from $290, and to $195 from $262, respectively. While this was part of industry-wide slowdown in automotive retail due to a milder winter and less consumer demand, traders are concerned about Amazon’s proposed vertically integrated auto parts business, which could start selling automobile products at a cheaper price via the internet.
• AAP: Advance Auto Parts also suffered losses last week, tumbling $14.66 (12.6%) to close at a 3-yr low of $101.93 at the end of the week. The automobile parts retailer’s price dipped after O’Reilly’s disappointing sales results. With U.S. car sales slowing in the first half of this year after 7 consecutive years of record-setting volumes, traders are expecting weakened demand in their retail sector. O’Reilly, Autozone, and Advance Auto Parts all finished at the bottom of the S&P 500 last week. 
• LB: L Brands, parent company of Victoria’s Secret as well as Bath & Body Works, plunged $8.78 (16.3%) last week following Victoria’s Secret’s disappointing June sales, which were down 17%. Victoria’s Secret had expected a hit to sales as it removed noncore apparel from its stores. However, even when taking this into account, a 7% sales miss was larger than expected. Underperformance was due to customers shying away from their semi-annual sales as well as consumers purchasing more affordably priced lingerie from their competitors.
• T: AT&T’s price dropped by only $0.75 last but being the third largest U.S. equity short at $5.6 billion, it does not take a large price move to create over $100 million in mark to market P/L.  Questions are still loom concerning AT&T’s planned $85 billion acquisition of Time Warner. The Trump administration in 2016 claimed that the proposed merger would have anti-trust implications but the appointment of Makan Delrahim as anti-trust head may actually bode well for the proposed deal.

Bottom 5 Worst Performing Shorts:
• AMD: Advanced Micro Devices was last week’s worst short performer rising $0.88/share, or 7%. The
semiconductor producer’s Ryzen chips sales have fared well against rival chip-maker Intel as demand for AMD’s chips has grown in the high-performance gaming PC sector. In addition to PC gaming, AMD’s use in crypto-currency mining has taken off this year following Bitcoin’s price rally. AMD is planning to release new graphic cards as well as more powerful Ryzen chips for high performing CPUs in the upcoming months.
• AAL: American Airlines’ stock price increased $2.71/share, or 5.4% last week, closing at a two year high of $53.03. The stock rallied after Delta Air Lines posted an operating margin guidance that was slightly head of estimates, leading investors to believe that American Airlines will have similar performance. In a surprising move, the CEO of Qatar airlines announced that the airline will start accumulating shares in American Airlines, which could have propelled investor confidence.
• JPM: JP Morgan saw a $2.45/share, or 2.7%, increase in its stock price last week to close at an all-time high of $93.85. This was part of an industry-wide climb in the banking sector last week, as several banks including Bank of America, Goldman Sachs, and Morgan Stanley saw concerted buying prior to Q2 earnings releases.  JP Morgan also opted out of an acquisition bid for London’s Worldpay Group that saved them nearly $10 billion.
• BAC: Bank of America enjoyed a $0.57/share, or 2.3%, price increase last week. Like JP Morgan, Bank of America had also been outperforming its 1Q EPS on the Fed’s rate hike, and is on pace to beat its 2Q estimates. This increase was part of an industry-wide trend in the banking sector, as rumors have been circulating that Congress will try to roll back the Volcker Rule in upcoming house budget bill, which would allow banks to engage in proprietary trading activity.
• PCLN: Priceline’s stock surged $47.98/share, or 2.6%, last week following a federal court ruling that its travel-booking agency, Kayak, did not infringe on a patent owned by Parallel networks. Parallel Networks had sued more than 100 companies on infringement.       

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC
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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