The Most Shorted Stocks in Canada 2021
Most likely you’re here because you’re interested in investing in the Canadian stock market. The Canadian market is a great place to invest in, whether you’re already a pro or someone who’s just getting started with the world of foreign investment. Just like the US, it offers the investors the opportunity to add diversity to their portfolio and take advantage of Canada’s booming industries.
You could also be here because you’re interested in the idea of short selling. You probably know the concept behind it, but let us give you a better overview of how this process works and tell you about the most shorted stocks in Canada in 2021.
How Short Selling Works
Shorting stocks is a way to benefit and make money during a market decline. Basically, this is a way to take advantage of the market downturns, including making investments during a recession, that can offer a chance for you to have profitable trades.
This is a method of capitalizing on the market’s volatility and grabbing all available opportunities when the market falls. Again, the concept is simple: buy low; sell high. But the difference is that contrary to regular stock trading, which usually requires the investor to buy the goods before selling them, short selling lets you sell before you actually buy.
Short-term strategies take benefits of the fact that even though the stock market tends to rise incessantly throughout a half-century or so, it also tends to have up-and-down swings over an hourly, daily, and weekly basis. Buying low and selling high is an incredible way to make the most of it.
Usually, an investor will make several purchases per day, and similarly, several sales per day. Using this strategy, you make money by selling the stock at a higher price than the price you purchased it for, but finding the perfect timing for this can be tricky.
Here are the best times to consider shorting a company’s stock:
- Company scandal
- Declining macroeconomic conditions
- Declining microeconomic conditions
- Lowered sales guidance
- Lowering future earnings guidance
- Poor management
- Shareholder dilution
You get the point. Any reasons that may hurt a company’s image or financial situation will generally offer you a good opportunity to short a stock.
You can make a profit from shorted stocks if the stocks continue to decline after you first enter the trade. The reason is that when you initially enter a short trade, you place an order to “Sell Short”, or “Sell to Open”. You’re basically selling the stock first, instead of getting into a typical long position trade where you would initially have to buy the stock.
Because you sell the stock first in a short-selling trade, you close out the trade by buying back the shares that you initially sold. This is what is known as “Buy to Close” or “Covering”.
Why Do People Short Stocks and Why Should You
When you buy a stock and keep it long-term, you will have no idea whether it is going to be profitable or not in 20 years. With short selling, on the other hand, you will know early on whether you made a good or a bad trade. This gives you a better opportunity to learn more about the market. People who don’t have the patience of waiting months to years and decades turn to fast-paced strategies like short selling.
People also perform short-selling to protect their long position against downside risk. Because of stock market swings, numerous securities could decline, so investors turn to short selling to guard themselves against losses.
While this sounds very risky, imagine if the stock price dips considerably. One can buy the stocks back at a lower price, which generates an instant profit. This, without having to put out money upfront!
In the bearish market, when optimism is low, many see short selling as a better way to go to make a profit. Because of that, a lot of hedge funds see this method as a great way to offer a return on investment to their clients.
Top 5 Most Shorted Stocks in Canada in 2021
Now, let’s go back to the Canadian stock market. Below are some of the Canadian companies that had the most shorted stocks at the beginning of the year. This list of most shorted stocks 2021 is measured by short interest as a percentage of total stock float.
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First Majestic Silver Corp. (FR-T)
First Majestic Silver Corp. is a Canadian silver-mining company that operates in Mexico. First Majestic owns 100% of three producing silver mines in Mexico; the San Dimas Silver & Gold Mine, the Santa Elena Silver & Gold Mine, and the La Encantada Silver Mine.
First Majestic Silver Corp. is the most shorted Canadian company on this list. Its +4.72% increase is a good example of cross-border shorting. For the domestically listed First Majestic Silver stock, the short interest is 4.1 million shares, a small percentage of the total float of 197.2 million shares. On the other hand, there are a whopping 46 million shares sold short in the United States.
Aurora Cannabis Inc. (ACB-T)
Aurora Cannabis claims to be one of the largest and fastest-growing cannabis companies in the world. Aurora Cannabis Inc. is a Canadian licensed cannabis producer, headquartered in Edmonton. It trades on the Toronto Stock Exchange and New York Stock Exchange as ACB.
There are 33.2 million shares of the U.S.-listed stock sold short, in comparison to the 5.9 million shares of the Canadian-listed stock. This also has to do with the Biden administration and the democrats who have expressed interest in the legalization of federal cannabis, sparking a new surge for cannabis TSX stocks. At the same time, many short sellers also jumped at the opportunity to bet against the resurgent sector.
Great-West Lifeco (GWO)
Great-West Lifeco is a financial service holding company that’s engaged in life and health insurance, reinsurance businesses, and wealth management in North America and Europe. Over the years, its shares have dropped 8.9%. This TSX stock attracts more and more short sellers to invest.
Tanger Factory Outlet Centers (SKT)
Tanger Factory Outlet Centers is a retail real estate investment trust that operates upscale headquarters in both US and Canada. Short sellers see a challenging outlook for the corporation as the occupancy levels have dropped to their lowest point in three decades. Furthermore, the mid-point of the core of this year’s FFO is lower than the 2020 reported figure. With substantial downside risk and short interest of about 33%, SKT stock is a risky bet.
Westshore Terminals (WTE.TO)
Westshore Terminals is a Vancouver-based company that operates a loading terminal and coal storage in its home province. In the third quarter of 2020, the company has offered favorable value on short sellers. The company reported a drop in revenue and profit from the prior year. Coal loading revenue plummeted 17% to $85 million. And while Westshore has managed to carry on with normal operations despite the pandemic, larger economic pressures can put on downhill pressure on its earnings going forward. Investors see the outcome for 2021 to be the same as it was in 2020.
Many top shorted stocks Canada companies have performed well, regardless of the dips in the stock market. You should also note that the data above about the most shorted stocks list was calculated in the first quarter of the year and is extracted from Bloomberg and Scotiabank GBM Portfolio Strategy. Given all the hoopla that surrounds short-covering lately, investors must be mindful that short interest data is always delayed, and subject to biweekly corporate filings.
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