Short traders are throwing cold water on hopes of a bump-free return to normalcy.
Vacation, travel and consumer stocks are among the most shorted on Wall Street. Those names include American Airlines, Whirlpool, Royal Caribbean and United Airlines. Short traders, who make money when those shares drop, view these names as the most vulnerable to a prolonged recovery from the coronavirus pandemic.
Clothing company Hanesbrands is one stock that could burn short traders should the economic rebound continue, according to Gina Sanchez, CEO of Chantico Global.
“Hanesbrands at some point is going to stage a comeback. I mean, this commando situation can’t go on forever,” Sanchez told CNBC’s “Trading Nation” on Friday.
Hanesbrands has short interest at 10% of its float. The stock has rebounded hard off its lows, rallying nearly 130% since its early April bottom.
“They’ve been able to pivot into making face masks and gowns for the federal government, but they’re going to come back, and quite frankly I think they’ll come back just as strong as they were before,” Sanchez said. “And it’s a longer-term play, but I think that play is there and I think that this is probably an unloved name that that needs more attention.”
Delano Saporu, founder of New Street Advisors, is watching a different consumer stock with high short interest.
“If you look at the long-term case for Under Armour, what you really want to see is execution. So, can they improve?” he said during the same “Trading Nation” segment. “They have a lot of big sponsors and they get those names, but can they improve with the execution of the products and the rollout of those products? Also, they’ve put a lot of money into investment in fitness and wearables, which didn’t really pan out, so I want to see better execution with those acquisitions.”
Under Armour’s Class C shares have short interest at 12%; its A shares are at 10%. The stock has fallen roughly 50% this year.
On the travel stocks with high short interest, Saporu says these are ones to avoid until there’s clarity on the pandemic front.
“When we’re talking about the travel names, that’s really going to be dependent on what we’re seeing with vaccines, the pandemic, people’s comfortability in going out. So there’s going to be a lot of pain in the short term for these names, so kind of sit on the sidelines,” he said.
American Airlines is one of the most shorted stocks on Wall Street. Nearly one-third of its float has been shorted.