Shorted stocks report earnings

The second-quarter earnings season has so far been generally positive for the U.S. in comparison to Europe, where almost three-quarters of company reports so far have exceeded expectations. According to the FT, the United States are having the fourth best earnings season since 2005. Despite this optimism against a murky backdrop of debt talks, there are stocks with high negative sentiment. We look at a FactSet screen displaying the most shorted stocks across the S&P 1500 which are due to report earnings this week including; Overseas Shipholding Group Inc (NYSE:OSG), Rubicon Technology, Inc. (NASDAQ:RBCN) and Peet’s Coffee and Tea (NASDAQ:PEET).

Three most shorted stocks

The share price of Overseas Shipholding Group Inc (NYSE:OSG) has been on the decline since the start of the year, falling almost 40%, sparking the interest of short sellers. The already heavily shorted stock has been subject to short selling activity as the price has continues its decline. Short interest has surged from 23% to 39% of the total shares outstanding on loan just over the past quarter and currently stands at an annual high. There is no sign of short covering but almost all of the lendable supply is already out on loan, limiting the ability for further shorting. In contrast, institutional investors have been less opinionated about this stock with little change in their total holdings. In fact there has been a decrease of less than one million shares over the quarter.

Earlier this week, we looked at the Semiconductor sector which is widely popular amongst short sellers. Rubicon Technology, Inc. (NASDAQ:RBCN) is another stock subject to high short interest as the share price (blue chart line) trades at annual lows. Over the month running up to earnings, short interest (red chart line) has increased from 30% to 35% of total shares outstanding. Institutional investors have shown positive sentiment towards the chipmaker as total holdings have increased from an annual low of 5 million shares, recorded in January, to an annual high of 8 million shares, in May.

Investors have been growing increasingly pessimistic towards Peet’s Coffee and Tea Inc (NASDAQ:PEET), as short interest continues to rise and institutional ownership of large funds who lend, remains low. Despite this and the deal between Starbucks and Green Mountain Coffee Roasters which rocked coffee stocks in March, the share price (blue chart line) has continued to rally and reach new annual highs. Short interest (red chart line) spiked to a new 52 week high of 30% of total shares outstanding following the announcement by Starbucks but short sellers quickly covered their positions as the share price saw minimal and temporary reaction. However, short interest picked up again over the second quarter and has since risen from 22% to 28% of total shares outstanding.