We’ve already talked about the top 10 worst short calls of the last five years, but what about the best shorts of 2020? When it comes to talking about short positions, the ones that generally get the most coverage are those that don’t do very well because their stocks are soaring, like Tesla.
Thus, the top 10 best shorts of 2020 may come as a bit of a surprise, although there is one on this list that you may have heard about. This list of the top 10 best shorts of 2020 is based on data from Ihor Dusaniwsky of S3 Partners.
ADW Capital’s 2020 letter: Long CDON, the future Amazon of the Nordics
ADW Capital Partners was up 119.2% for 2020, compared to a 13.77% gain for the S&P 500, an 11.17% increase for the Russell 2000, and an 8.62% return for the Russell 2000 Value Index. The fund reports an annualized return of 24.63% since its inception in 2005. Q4 2020 hedge fund letters, conferences and more Read More
Top 10 best short calls
According to S3, short interest in Nordstrom averaged to $766.5 million this year. Mark-to-market profits surpassed $1 billion on this position.
Nordstrom has struggled, as other department store chains have. Over the last year and a half, the company's retail revenues started to decline year over year. In a post on Seeking Alpha earlier this month, the Bears of Wall Street discussed the short case for Nordstrom.
He noted that the department store chain has $500 million in debt that's going to mature in a year, which means it could dilute its shareholders or increase its debt burden even more to meet those obligations. Further, Nordstrom has a junk credit rating, which means it will only be able to take on more debt at high rates. The company's margins are also lower than those of its peers, rounding out a difficult story.
Short interest in Chevron averaged $1.7 billion this year, and mark-to-market profits have also surpassed $1 billion. The oil company's inclusion on this list of the top 10 best shorts of 2020 is interesting because it passed ExxonMobil as the biggest U.S. oil company temporarily.
It just hasn't been a good year for oil companies due to plunging oil prices, which have essentially had oil companies paying customers to take oil. That could be why Chevron and also ExxonMobil made this list. Even though short sellers have profited off their positions in Chevron, plenty of investors are still bullish on the company.
One contributor to The Motley Fool set out the bull case for Chevron this week, arguing that it is the strongest energy stock of the bunch.
Short interest in JPMorgan Chase averaged $2.5 billion this year, bringing in a mark-to-market profit of $1.07 billion. Ultra-low interest rates aren't good for banks because they eat into their profits. There isn't a whole lot of news coverage of JPMorgan stock in either direction, but apparently, short sellers have done well this year.
Short interest in Luckin Coffee averaged $429.6 million this year, but mark-to-market profits were an astounding $1.1 billion. Because of the controversy over the company, it became a hot short position, which boosted the average borrow fee to 21.62%--the highest average borrow fee by far of any of the stocks on this list of the top 10 shorts of 2020.
Luckin Coffee captured short sellers' attention early this year when Muddy Waters announced it was shorting the company, calling it a "fraud" and a "fundamentally broken business." China's Starbucks held its initial public offering last year, and its stock plunged after Muddy Waters' allegations. Interestingly, a growing number of investors are starting to tout a bull case for Luckin Coffee, and its shares are starting to rise.
Short interest in Boeing averaged $2 billion this year, while mark-to-market profits reached $1.2 billion. The company has struggled with job cuts and talked about seeking a bailout from the government due to stress on the airline industry, which caused airlines to cancel their airplane orders.
Boeing has also continued to have problems with its 737 Max airplane even before the COVID-19 pandemic hit. The airplane maker recently predicted a difficult decade due to the pandemic and slashed its forecast for new aircraft demand. Short sellers have obviously benefited from the company's troubles this year.
Short interest in Raytheon averaged $1.7 billion this year for a mark-to-market profit of $1.2 billion. The defense contractor has been controlling costs well, but plunging sales due to weakness in the aerospace industry have investors concerned.
In a post for Forbes in June, Trefis argued that Raytheon stock could recover toward the end of this year as investors increasingly focus on next year, which could be better for the company.
Simon Property Group
Short interest in Simon Property Group averaged $1.7 billion this year, while mark-to-market profits approached $1.3 billion. The real estate investment trust has also struggled this year as the pandemic caused shopping malls to shut down.
Despite the fact that short sellers have won big on Simon Property Group, several analysts and some investors are touting a bull case for the stock. CNBC reported this month that the company's strong balance sheet and higher-tier malls set it apart from other struggling REITs.
Short interest in Wells Fargo has averaged $1.3 billion this year, and mark-to=market profits have surpassed $1.3 billion. Like JPMorgan Chase, Wells Fargo will also struggle with ultra-low interest rates for the foreseeable future.
Warren Buffett's Berkshire Hathaway slashed its long-held stake in Wells Fargo to only 3.3%, selling off the shares in multiple batches throughout the year. In a post for Seeking Alpha, Income Generator presented the bear case for the stock this week. The bank missed earnings estimates for the third quarter, although it did beat revenue estimates.
Wells Fargo CEO Charles Scharf said Wells Fargo's third-quarter results "reflect the impact of aggressive monetary and fiscal stimulus on the U.S. economy." He also warned that the bank's trajectory going forward is unclear.
Short interest in AT&T averaged $3.9 billion this year, and mark-to-market profits surpassed $1.5 billion. The company has been struggling under a heavy burden of debt for some time, resorting to job cuts and asset sales to deal with it.
By the end of the third quarter, AT&T had reduced its debt to $149 billion, and rumors about additional asset sales continue to swirl. For example, there are reports that the company could sell DIRECTV at a loss after acquiring it for $49 billion five years ago.
A Motley Fool contributor explained why he's starting to be less enthusiastic about AT&T stock. He explained that the company is starting to fall behind T-Mobile since T-Mobile's merger with Sprint earlier this year. Additionally, AT&T's pay TV platforms are still losing subscribers to streaming service. The company lost 590,000 pay TV subscribers during the third quarter.
Short interest in ExxonMobil has averaged $2.3 billion this year, and mark-to-market profits so far have approached $1.7 billion. Like Chevron, ExxonMobil has taken a hit from plummeting oil prices and rising crude inventories. The company warned this week that job cuts could be on the way for its U.S. operations.
The Church of England Pensions Board dumped all of its shares in the oil giant this year, and it wasn't the only investor to do so. The stock has lost more than half of its value so far this year. ExxonMobil's debt has also been rising along with its capital spending plans despite the weakness in the oil market. The company was also removed from the Dow Jones Industrial Average, adding insult to injury.