In this July update on the short selling of shares in Canadian public companies, we report on:
- This month’s highlight: short interest for bank ETF remains elevated
- Meme stocks and short squeezes in Canada
- Largest short positions
- Largest increases in short positions
- Methodology and data sources.
This month’s highlight: short interest for bank ETF remains elevated
In July, the BMO S&P/TSX Equal Weighted Banks ETF (ZEB-T) ETF edged up to 23.4 per cent of float from 22.2 per cent in June. One explanation for the large position could be that U.S. President Donald Trump’s steep tariffs could trigger a downturn in sectors of the Canadian economy, ratcheting up loan defaults and depressing loan demand.
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Meme stocks and short squeezes in Canada
With all the froth in stock markets this summer, it’s no surprise that the meme stock phenomenon appears to be on the comeback trail.
As was the case in 2021 with GameStop Corp., U.S. retail investors are reportedly banding together on social media to channel their buying power toward highly shorted stocks for the purpose of triggering short squeezes that skyrocket prices and fatten wallets. High profile cases in the United States in July include Opendoor Technologies Inc. (OPEN-Q), Krispy Kreme Inc. (DNUT-Q), GoPro Inc. (GPRO-Q) and Kohl’s Corp. (KSS-N).
The meme stock craze doesn’t seem to have surfaced to the same extent in Canada, yet. But if it does become a thing, we have an early warning system in the short-squeeze rankings compiled by data firm S3 Partners. Its algorithm, the Short Squeeze Score, assigns a score of 100 to companies with the highest probability and a score of 0 to those with the lowest.
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The rankings are, in fact, now showing a decided increase in the number of companies at risk of short squeezes, which might be of interest to YOLO Apes looking for a trip to the moon. Some, like Energy Fuels Inc. (EFR-T), already appear to have left the launching pad. The table above offers some suggestions for which companies could be candidates for meme status.
Largest short positions for July
Short sellers borrow stocks and sell them in hopes they can be bought back at lower prices and returned to the lending broker. Academic studies have found that stocks with large short positions tend on average to underperform, so short sales can be a red flag warning of what stocks to research with greater due diligence before buying.
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In the large-cap space, one would not expect to see gold miner Lundin Gold Inc. (LUG-T) to be the second most shorted company considering how well the price of bullion has fared this year. One explanation could be that the stock price has appreciated so much recently - rising 125 per cent year-to-date — that valuation has become a concern and fears of a reversal are rising. As Desjardins Securities analysts noted: “We expect that the pace of share price appreciation through 1H25 is not sustainable . . . . We recommend that investors take some profit.”
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In the mid-cap space, the short position in Bausch & Lomb Corp. (BLCO-T) is making a big move up, having reached 11.6 per cent of float in July compared to 5 per cent in January. Bausch & Lomb, which offers contact lenses and a variety of eye-care products, is rated a sell by Zacks Investment Research Inc. because analysts have revised downward their earnings projections over the past 60 days (ending July 29). Citing academic studies, Zacks claims that earnings revisions by analysts can be a useful signal of where a company’s stock price is headed.
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A new face in the top ten of short positions for small-cap stocks is Toronto-based Andean Precious Metals Corp. (APM-T), a precious metals producer with operations in Bolivia and the United States. The Bolivian operation purchase ore from third parties to produce silver doré bars; its U.S. operation extracts gold and silver from ore.
The company reported revenues of $273-million and earnings per share of 22 cents for the 12 months ending March 31, 2025. It’s not clear why short interest is high as the company appears to be doing well, although there is the caveat that the processing facility in Bolivia is said to be located in a region with a history of political and social instability
Largest increases in short positions for July
Changes in short positions can be informative, as well.
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Of note, Frontera Energy Corp. (FEC-T), an oil-and-gas company with operations in South America, had a large increase in short interest. This could be related to the dispute that begin in March between Frontera and the Guyana government over the validity of its mining license.
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
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