Short sellers shop food retailers

Investors may not be very active towards agribusiness as we reported last month but short interest is building in the recession-resistant US food retail sector. The average short interest across the Food and Staples Retailing sector stands at 4% of total shares. However, this is being driven higher as almost half of the industry stocks have seen short interest reach a new annual high over the past month. 

Top short

Supervalu, Inc. (NYSE:SVU), one of the largest grocery chains in the U.S. has seen its shares tumble to half their value over the past two years. However, short sellers paid little interest to this stock until January of this year, when short interest more than quadrupled to unprecedented highs of 23% of total shares, while shares dipped to annual lows. Short interest has since reduced to 20% of total shares outstanding on loan but this stock remains the most shorted in the sector. In contrast, institutional investors seem less opinionated towards this stock. Although the total holdings of funds who lend has gradually declined over the year, 31% of total shares are still being held in lending pools. While this stock has a convertible bond in issue much of the short interest appears to be directional shorting.

A shopping cart of shorts

Safeway, Inc. (NYSE:SWY), Winn-Dixie Stores, Inc. (NASDAQ:WINN) and Fresh Market, Inc. (NASDAQ:TFM) all reached fresh annual short interest highs last week. Meanwhile institutional investors hold a third of total shares of each of these stocks. 

Investors have been building their short positions in Safeway Inc. since March after the share price showed no signs of a slowing rally. The share price has since fallen by 10% over the past month after having reached annual highs, but this did not prompt short sellers to cover their positions and take profit. In fact, short interest has since increased at an accelerated pace from 9% to a new annual high of 12.8% of total shares outstanding. This bearish sentiment is matched by the long investors who have gradually decreased their holdings by 15% over the year, but total holdings of large funds who lend still accounts for 30% of total shares.

Winn-Dixie Stores Inc. saw an unusually high volume of securities lending trading last week pushing short interest to a new annual high of 15% of total shares outstanding on loan. Short interest is now double that of levels recorded in January. Despite the share price reaching new annual highs last month, short sellers show no sign of covering their positions. In contrast, institutional investors continue to be positive towards this stock having increased their holdings consistently over the year to a total of 28% of total shares.

Fresh Market Inc, which floated last November, has been upgraded by analysts forecasting double-digit year on year percentage sales increases. Although the share price has jumped by 40% over the past two weeks, short sellers, who have been relatively dormant towards this stock, have taken the contrarian view with short interest having surged from less than 1% to 8% of the total shares. In contrast, institutional ownership has increased by 50% over this period, increasing stock availability. In turn, the stock only sees 40% of its lendable supply out on loan.