Australian Investment Blog

Looking at 3 recent underperformers as potential "catch up" stories. So far 2016 has been the year where stocks that have been the significant underperformers have dramatically become the market darlings on a combination of changing economic circumstances and aggressive short covering. Some noticeable examples of this are in the resources and energy sectors e.g. BHP +16%, RIO +15%, FMG +82% and STO up 30%. Many hedge funds that have enjoyed significant profits from short positions in these sectors over recent quarters / years have been forced to cover sending these heavyweights soaring. One day gains of 5-6% have occurred on the back of ‘less bad’ corporate news or simply mass short covering. This morning we are looking at three stocks that still have large short positions and have the potential to emulate our miners / energy stocks. We have deliberately chosen three stocks that we do not discuss often but may "squeeze" higher if the correct circumstances unfold as hedge funds are now clearly more trigger happy to cover shorts. However it should always be remembered that hedge funds are professional investors who often get it right, all 3 of the stocks we are looking at have been in downtrends for a number of years, hence prudent money management must be used when playing in this space. Note; short covering is when traders who have sold a stock they do not own, hoping to profit by buying back cheaper, repurchase that sold stock. Orica (ORI) Monthly Chart