While most investors grow their wealth by building positions in companies with great long-term promise, others build wealth by betting on a company's misfortunes or demise.
It's a strategy known as 'shorting', or 'short-selling', whereby the investor can profit (often handsomely) from a falling share price. In practice, the short seller borrows stock from an owner of the shares with the intention of selling them at a high price, before repurchasing them at a lower price.
Trends in the shorting market provide a good indication of how the market is feeling about certain stocks or sectors. The Australian Securities and Investments Commission (ASIC) publishes short position statistics, including the name of the company and the percentage of their free-float shares being shorted.
Australia's most shorted stocks
Perhaps unsurprisingly, Myer Holdings Ltd (ASX: MYR) and Metcash Limited (ASX: MTS) found themselves at the top of the ASX's most shorted list as at 10 April.
Myer's shares have declined heavily in recent years as the department store giant has struggled with tougher competition from online stores and international rivals. Investors clearly expect further pain for the company with a massive 18.8% of their stock shorted. Meanwhile, Metcash, which owns IGA supermarket stores around Australia, has also been losing the war against Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES). A painful 17.5% of its stock has been shorted.
Other companies that find themselves in the unenviable top-10 most shorted list include Fortescue Metals Group Limited (ASX: FMG) (12.6%), Orica Ltd (ASX: ORI) (12.4%) and Primary Health Care Limited (ASX: PRY) (10.8%).
Excellent opportunities
While many stocks are justifiably shorted by investors, the short-list can also be a great place to find some great investing opportunities. One company that currently finds itself in the top-10 most shorted ASX stocks is none other than Flight Centre Travel Group Ltd (ASX: FLT), with 10.7% of it shorted.
Investors have been concerned about the falling Australian dollar and how that could impact Australian outbound travel rates. These fears were exacerbated when the company issued a profit downgrade late last year due to uncertainty in the Australian market.
However, long-term investors should recognise this as an excellent opportunity to buy a high-quality travel agency business. With strong long-term growth potential (both locally and internationally), Flight Centre appears to be a reasonable buy at $40.90 per share.
While both fell outside the nation's top-10 shorted companies, investors could also look to take advantage of heavily shorted positions on Woolworths and JB Hi-Fi Limited (ASX: JBH). The pair are currently trading at $29 and $19.05 respectively, and could make for great long-term buy-to-hold investments.
