The Most Expensive US Shorts

Last week we highlighted that the cost to borrow newly floated LinkedIn shares had reached a perfect 10 on our score (one being cheap and 10 being the most expensive) with demand hugely outweighing supply. This prompted us to review other US listed stocks which are notbaly expensive to borrow. For investors to be paying through the nose to short these names they must be very confident - so this is an interesting list including; Star Scientific (NASDAQ:CIGX), Synutra International (NASDAQ:SYUT), St. Joe Company (NYSE:JOE), Rubicon Technology (NASDAQ:RBCN), Barnes and Noble (NYSE:BKS) and Demand Media (NYSE:DMD).

The Bloomberg screen below lists the most expensive to borrow US stocks, with a market capitalization of more than USD 500 million, ranked according to the DX Cost to Borrow Score.
 

Star Scientific tops the list of most of expensive to borrow stocks. The developer of low-nicotine tobacco products has seen its share price more than double since March to over USD 5, following rumours that the company may have stumbled upon a potential treatment for Alzheimer’s disease. Short interest has also surged following the recent bullish activity in the share price from 9% to 14% of total shares outstanding on loan. Almost all of the shares which are available to be borrowed are already currently out on loan.

Synutra International is another troubled Chinese stock listed in the US. The infant formula company sees its cost to borrow score at 10 due to a very limited pool of supply to cover short sales. The percentage of overall shares outstanding on loan is low, but has gradually risen from 0.5% to 2.5% since August last year.

St. Joe Company is the most shorted real estate stock and was targeted by short sellers over the last quarter of 2010 after the true value of the Floridian real estate developer was questioned by David Einhorn, who was amongst the first to raise the alarm about Lehman’s. Short sellers rushed to cover their positions over the first quarter of this year as the share price began to fall following both the share price and short interest peaking at annual highs. However, short interest has again increased since April from 15% to 20% of total shares outstanding on loan.

Rubicon Technology is the most shorted Semiconductors stock. The sector is the fourth most utilized in the US with almost a quarter of its stock out on loan. Short interest has declined from 43% to 32% of total shares outstanding on loan since then.

Barnes and Noble has been in the media lately following a takeover bid. Since our last report (click here) on the book seller, short sellers have rushed to cover their short positions as the share price hit USD 20. Short interest has plummeted from 24% to 16% of total shares outstanding on loan in just 10 days yet the stock remains expensive to borrow.

Demand Media is the recently listed content farm that is having to adapt its business model to changes in the Google search algorithm and has seen its share price drop by 25% below its IPO price. While only 3% of the total shares outstanding are on loan, this represents most of the lendable supply and it is expensive to borrow.