It takes a certain kind of courage to short sell blue chips, such as the Dow Jones industrial average components. Short sellers are betting on these companies to fail, or at least for their share prices to fall handily. Plus, those sellers are responsible for paying the dividends on the stocks they short.
Maybe it is little surprise that only two of the 30 Dow stocks had sizable short interest between October 15 and October 31; that is, more than 50 million shares short. In fact, just five of them had short interest of more than 40 million shares.
While the bull market is quite long in the tooth — now well more than 10 years old — and concern about a possible recession remains as the trade war with China shambles on, the markets are again trading near all-time highs. Investors may wonder then what the short sellers expect from some of the biggest, most well-respected names on Wall Street in the final quarter of the year.
As of the end of October settlement date, the most recently reported period, short sellers favored Microsoft Corp. (NASDAQ: MSFT), Intel Corp. (NASDAQ: INTC) and Pfizer Inc. (NYSE: PFE) above all other Dow stocks.
Microsoft
> Shares short: Almost 61.83 million
> Change from prior period: 8.2%
> Percentage of float: 0.8
Microsoft’s short interest has grown in nine of the past 11 periods, and it remained king of the hill among Dow stocks after the fourth quarter kicked off. The days to cover figure remained more two, even though the average daily volume increased late last month.
Microsoft recently beat out Amazon for a $10 billion cloud computing contract from the U.S. Department of Defense. Like the S&P 500, the share price ended those two weeks less than 2% higher, though the shares had been down more than 4% at one point in the period. They recovered further after the settlement date.
After ending in the past week about 1% higher, Microsoft stock closed trading most recently at $146.11 a share. That was in a 52-week range of $93.96 (seen last December) to $146.42 (on Monday). The most recent share price is more than 44% higher than at the beginning of the year, compared to almost a 19% gain for the Dow.
Intel
> Shares short: More than 56.71 million
> Change from prior period: 2.1%
> Percentage of float: 1.3
Intel short interest continues to rebound from a year-to-date low in September but is still well below the year-to-date high of more than 63 million shares back in July. At the average daily trading volume on the latest settlement date, it would take these investors less than three days to cover their short bets.
Analysts were positive but wary on Intel after its record third-quarter results. Short sellers watched the shares rise more than 7% by the end of the two weeks, most of that gain coming after the earnings report, and continue higher into November. Note that the Nasdaq ended those two weeks more than 2% higher.
Intel was last seen trading at $58.35 a share, not far from the multiyear high of $59.59 seen this past spring and well above the 52-week low of $42.86. The latest share price is about 24% higher than at the beginning of the year, but the Nasdaq is up around 27% year to date, while the Dow has seen that gain of less than 19%.
Pfizer
> Shares short: About 49.60 million
> Change from prior period: 1.2%
> Percentage of float: 0.9
After topping the Dow short interest list in most periods since May, Pfizer dropped a couple notches in the final weeks of the third quarter. The most recent days to cover figure is more than two. Note that the latest number of shares short is nowhere near the 156 million seen back in January.
While Pfizer posted disappointing third-quarter results last month, it also, like peer Merck, offered upbeat guidance. Pfizer shares ended the final two weeks of October about 5% higher than where they started, again boosted by the earnings report. Meanwhile, the Dow rose only fractionally by the settlement date.
Shares closed most recently at $36.93 apiece, which is down more than 2% in the past week. Pfizer’s 52-week low of $33.97 was seen in August, and the 52-week high of $46.47 was from last December. The stock now trades more than 14% lower than at the beginning of the year.
And the Rest
Rounding out the top five most shorted Dow stocks on the most recent settlement date were Apple Inc. (NASDAQ: AAPL) and Exxon Mobil Corp. (NYSE: XOM). Only the latter saw a gain in the number of its shares short during the final two weeks of October. The share price of Apple rose during the period, more than 6%, buoyed by a strong showing for its fiscal fourth quarter. On the other hand, Exxon shares retreated marginally during those two weeks, even though its latest earnings decline was not as bad as expected.
Also notice on the following list of short interest changes in Dow stocks as of October 31 the double-digit rise at Cisco (ex-CEO launches cloud startup), JPMorgan (trade concerns) and Caterpillar (earnings miss).
| Dow Stock | Short (millions) | Change | % Float |
|---|---|---|---|
| Microsoft | 61.83 | 8.19% | 0.82% |
| Intel | 56.71 | 2.09% | 1.30% |
| Pfizer | 49.60 | 1.15% | 0.90% |
| Apple | 45.15 | −5.98% | 1.02% |
| Exxon | 42.25 | 4.88% | 1.00% |
| Cisco | 38.82 | 14.42% | 0.92% |
| Verizon | 35.17 | −2.75% | 0.85% |
| Coca-Cola | 30.55 | −13.51% | 0.72% |
| JPMorgan | 30.30 | 11.02% | 0.97% |
| Visa | 29.71 | −5.70% | 1.72% |
| Walgreens | 28.02 | 1.11% | 3.77% |
| Procter & Gamble | 22.82 | 2.61% | 0.92% |
| Chevron | 20.90 | 2.67% | 1.11% |
| Merck | 19.86 | −7.37% | 0.78% |
| Johnson & Johnson | 16.95 | 1.37% | 0.64% |
| Disney | 16.23 | −9.22% | 0.90% |
| Walmart | 15.79 | −7.61% | 1.13% |
| Caterpillar | 13.53 | 46.04% | 2.45% |
| IBM | 13.48 | −15.97% | 1.52% |
| Home Depot | 11.13 | −7.81% | 1.02% |
| UnitedHealth | 10.11 | 2.90% | 1.07% |
| 3M | 9.17 | −3.36% | 1.60% |
| Dow | 8.57 | −0.24% | 1.16% |
| Goldman Sachs | 7.79 | 2.21% | 2.35% |
| Nike | 7.27 | −18.96% | 0.60% |
| American Express | 6.97 | 10.14% | 0.85% |
| McDonald’s | 6.43 | −2.27% | 0.85% |
| United Technologies | 6.68 | 0.92% | 0.77% |
| Boeing | 5.68 | 5.09% | 1.01% |
| Travelers | 4.02 | 11.46% | 1.56% |
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