Institutional investors see buying opportunity ahead of earnings; short sellers awaken

As we approach the end of the US earnings season we have highlighted stocks due to update the market this week which see interesting movements in securities lending flow, despite the overall market malaise. Stocks covered include: Toll Brothers (NYSE:TOL), Dollar Financial (NASDAQ:DLLR), HJ Heinz (NYSE:HNZ), Tivo Inc. (NASDAQ:TIVO) and retailers Tiffany (NYSE:TIF), Guess Inc (NYSE:GES) and American Eagle Outfitters (NYSE:AEO).

Despite the Russell 3,000 Index having fallen 6% in last 2 weeks, we have seen long only investors who lend their shares, our proxy for institutional ownership, having increased holdings by 2% to an average of 23% across the Index. During this time, average short interest across the Index has risen by 7% to stand at 5%, as short sellers have reacted to the declining markets.

As US mortgage rates have plunged to a 50 year low, the surge in refinancing that has helped the struggling US consumer reduce borrowing costs, notes the FT. Against this potentially favorable backdrop house builder, Toll Brothers will announce earnings having seen its share price slide by a quarter to USD 16 since late July. Short interest has gathered momentum from the annual low in May of 4%. Shares on loan rose to 7% by 11 August, before shorts covered positions to 5% of the total shares. Institutional investors began to reduce their holdings at the end of June by 7 million shares, but with 29% of the company, they remain overweight the average for the Russell 3,000 Index.

Alternative lender, Dollar Financial has appeared on our screen of stocks seeing fresh annual highs in short interest earlier this year. However, shorts covered positions since stock on loan reach the annual high of 10% of the total shares in February and short interest has fallen to 6% of the company. Institutional investors have not been swayed by the recent market turmoil. Holdings have remained steady at around an impressive 45% of the company since March – these investors remain overweight compared to the average ownership for the Index.

The share price of consumer staple, HJ Heinz has bucked the market by rising 6% since 8 August and institutional shareholders have added to stakes by the same amount – albeit over the last month, raising their total holdings to 20% of the company. Short interest is low at 2.5% of the total shares and has declined from 3% at the beginning of August.

Tivo Inc. has been in the news recently following the announcement of expansion plans into Europe. The share price halved in July but has seen a partial recovery in August, against the wider market. Institutional investors have added just over a tenth to their holdings, raising their stake to 31% of the company. Short interest has oscillated between 8% and 12% of the total shares since March and currently stands at 10%.

Surprisingly positive earnings from retailers has been one of the few pieces of good news to emerge from the US economy over the past weeks. Amongst the retailers updating the market this week, Tiffany has seen short interest fall by a quarter over the last month to 3% of its total shares. 2% of Guess Inc shares are out on loan and American Eagle Outfitters sees 6% of its shares on loan.