In this update on the short selling of shares in Canadian public companies, we report on:
- Largest short positions in companies
- Largest short positions in exchange-traded funds (ETFs)
- Short squeeze candidates
- Stocks with the highest cost to borrow
- More commentary on the Brookfield group of companies
- End note on methodology and data sources
Largest short positions in companies
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Imperial Oil Ltd. (IMO-T) was downgraded before the market opened on March 27 to a Sell by Goldman Sachs analyst Neil Mehta. Although shares in the integrated oil producer have performed well over the past year, peers such as Canadian Natural Resources Ltd. (CNQ-T), are seen as offering better value, thanks to the higher yields on their free cash flow and dividends.
In March, several large-cap companies, particularly Great West Lifeco Inc. (GWO-T), Lululemon Athletica Inc. (LULU-Q), BCE Inc. (BCE-T) and Magna International Inc. (MG-T), had noteworthy jumps in the percentage of their float sold short. This development may be related — particularly in the case of auto parts manufacturer Magna International — to the tariff wars with the United States.
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The claim by D-Wave Quantum Systems Inc. (QBTS-Q) to be the first company to offer commercially viable quantum computers propelled its stock to a gain of nearly 800 per cent over the past six months, even though analysts predict it will continue to run losses in 2025. Earlier this year, there was a sharp reversal (largely erased since) in the stock when Nvidia CEO Jensen Huang said that quantum technology would take up to 30 years to produce useful machines.
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Bitfarms Ltd. (BITF-T), a cryptocurrency mining company, has lost half its value on the stock market over the past year to trade just above a dollar on the TSX. The appointment a few months ago of a new CEO could lead to a turnaround but it will be a challenge.
Issues include weak profit margins and high cash burn. Past restatements and delays in financial reports don’t help with restoring confidence either. Then again, perhaps the appointment on March 26 of James Bond as Senior Vice President of High-Performance Computing could — like his namesake in the movies — enable an escape from a tight spot
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Largest short positions for exchange-traded funds (ETFs)
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The short position in the iShares Gold Bullion ETF (CGL-C-T) could turn a profit for short sellers if the price for bullion falls, perhaps not an unreasonable expectation considering gold has soared to record levels above US$3,000 and now looks overbought by historical standards.
Short sellers of the iShares Canadian Corporate Bond ETF (XCB-T) are betting on a drop in bond prices (inversely related to interest rates), likely due to the heighted risks of inflation and company bankruptcies arising from higher U.S. tariffs.
Short squeeze candidates
While short positions tend to warn of underperformance in a stock, short sellers can unintentionally push stock prices higher if they rush to buy back the shares they borrowed. Such panic buying can be triggered by mounting losses, higher borrowing costs and other factors.
Data source S3 Partners combined these factors into an algorithm, called the Short Squeeze Score, to rank companies by the likelihood of a short squeeze — with 100 being the highest probability and 0 being the lowest.
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Stocks with the highest cost to borrow
Short sellers borrow stocks from brokers and sell them in hopes they can be returned at a lower price. The broker charges a lending rate that varies daily with demand and supply; sometimes the lending rate can be bid quite high. Thus, it can serve as another gauge of bearish sentiment.
It could be noted that few brokers share the interest earned from lending out shares held by their customers. If an investor owns shares with a high cost to borrow, it would be better to hold them with a broker that shares the interest (for example, Interactive Brokers).
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More commentary on the Brookfield group of companies
On March 6, the Financial Times of London published an investigation by Dan McCrum and Antoine Gara into the Brookfield group of companies, under the title: How much does Brookfield really make?
End note on methodology and data sources
S3 Partners was the main source for short-sales data. It was selected because Canada has many companies interlisted on the U.S. and other exchanges, and S3 Partners sums short positions (currency-adjusted) across both countries. Other data sources for short sales data don’t do this.
A cutoff was applied to exclude companies whose short positions were miniscule in dollar value. The percentage of a company’s float (freely traded shares) is used instead of the percentage of outstanding shares to provide a better gauge of bearish sentiment.
Note that short positions, regardless of data source, may not be purely bearish bets because of trades made for hedging or arbitrage reasons.
Larry MacDonald is a regular contributor to the Globe and Mail, and author of several business books, the latest being The Shopify Story