Short & Caught: Pilbara Minerals ASX’s most shorted as lithium stocks targeted
Short sellers effectively borrow a stock from a broker, and go wager it (sell it) on the open market. The plan is to then buy the same stock back later after it’s made a hefty drop in price. That done, the short seller buys it back at the lower price and returns it to the lender.
The difference between the sell price and the buy price is the short seller’s profit. Investors are in effect betting they will fall.
Because shorting is restricted under Australian law (and because it’s an all or nothing bloodsport) any substantial shorting of stocks is worth knowing about, even if you only trade long.
And perhaps there’s method in the madness.
Stockhead has utilised the number of short positions as a percentage of total shares on issue. The most ASX shorted stocks (excluding CDIs) all have 5% or more.
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As falling lithium prices continue to weigh on ASX lithium stocks heading into 2024, Pilbara Minerals (ASX:PLS) remains the most shorted stock on the Aussie bourse after rising to top spot late last year.
The ASX 200 lithium company currently has 20% of its stock currently shorted, up from 19% in late November. Analysts say PLS is most likely targeted by short sellers as a pure play exposure to falling lithium chemical prices.
“Given that PLS is the largest, most liquid pureplay producer, it is the cleanest way for hedge funds to get borrow on the stock in large size and bet against the lithium price,” Seneca investment analyst Ben Richards told Stockhead late last year.
Lithium prices came off elevated highs last year due to softer than expected EV demand and destocking of Chinese inventories. Benchmark Minerals’ lithium price index fell ~78% in 2023.
Other lithium stocks are also being targeted by short sellers. Core Lithium (ASX:CXO), Syrah Resources (ASX:SYR), Sayona Mining (ASX:SYA), and Liontown Resources (ASX:LTR) also remain on the list of the most ASX shorted stocks.
However, according to Joe Lowry, host of The Global Lithium Podcast, who has been dubbed “Mr Lithium” and is one of the world’s foremost lithium market experts, the battery metals price could improve in 2024.
Lowry told Stockhead what happened in 2023 wasn’t a shock.
“I have been in this business for over three decades – lithium battery supply chain disconnects have happened multiple times,” he says.
“In 2022, all facets of the supply chain developed excess inventory, so in effect 2022 wasn’t as great a year as it looked, the price run up was unnecessary, and 2023 was a year of correction.”
Lowry believes the long term lithium demand story is still intact.
“I expect lithium chemical supply to be close to balanced but as inventories are rebuilt in China, price will begin to rise sometime in 2024,” he says.
Apart from lithium, several resources stocks were on the list of short sellers including Raleigh Finlayson’s ~$2 billion market capped gold miner Genesis Minerals (ASX:GMD).
The company’s strategy is “building a premium Australian gold business with sustainable, high quality, +300,000 ounces per annum production”.
Uranium prices are now above the US$90/mark and surpassing a 16-year high.
DYL last week announced the follow-up drill program at its Barking Gecko prospect on EPL3669 is complete. The program included eight reverse circulation (RC) holes totalling 1,558m. Results include: 9m at 382ppm eU3O8 from 203m at TN294RC, and 3m at 260ppm eU3O8 from 64m at TN297RC.
PEN in November announced it had received binding commitments from new and existing institutional and sophisticated investors for a $50 million placement to progress pre-production works at Lance to achieve a production restart in late 2024.
Flight Centre (ASX:FLT), which was the most shorted stock on the ASX for much of 2022 and 2023, has seen its short position further improve at the start of 2024.
Several consumer discretionary stocks also continue to be targeted by short-sellers including JB Hi-Fi (ASX:JBH), Harvey Norman Holdings (ASX:HVN),Domino’s Pizza Enterprises (ASX:DMP) and Super Retail Group (ASX:SUL) as higher interest rates and cost of living pressures continue to bite.
Short-sellers also continue to bet against health stocks including cancer fighter Imugene (ASX:IMU) and Clinuvel Pharmaceuticals (ASX:CUV), which is focused on developing and commercialising treatments for patients with genetic, metabolic, systemic, and life-threatening acute disorders.
Morningstar recently announced a fair value estimate of $18 on CUV and says the stock currently looks undervalued, trading at an 11% discount.
The broker says the company’s key product, Scenesse, is the only approved treatment for phototoxic reactions specifically associated with erythropoietic protoporphyria (EPP), a rare genetic disease, the broker says.
“We suspect the market is likely too pessimistic on the speed and extent of Clinuvel’s commercial rollout of Scenesse for its existing indication which contributes 83% to our fair value estimate.”