Stock market

3 Heavily Shorted UK Stocks Investors Should Avoid

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When I have a lot of short UK stocks (which a lot of hedge funds are betting on). against) in the past, this has generally not gone over well. More often than not, these stocks have tanked, resulting in bad losses for my portfolio.

With that in mind, today I’m going to highlight three UK-listed companies that are being heavily shorted at the moment. Given the attention these stocks are receiving from short sellers, I think investors should avoid these names for now.

Losing customers

First is FTSE 250 Wealth Management Company abrdn (LSE: ABDN). It is currently the sixth most shorted stock in the UK, according to FCA figures.

Looking at recent headlines, I can see why this stock is being targeted.

For starters, active investment managers are really struggling to compete with passive managers like iShares and Vanguard.

In recent years, customers have been pulling their money out of company funds due to poor product performance (a problem I highlighted last year).

Second, the company let its costs get too high. Last year, its cost-to-income ratio was 82%.

Now it’s worth mentioning that a recent update from abrdn revealed the return of client arrivals. So maybe the company is starting to turn things around.

However, I think this is a risky stock. The share price is in a downward trend and the dividend payout does not look sustainable.

Too much competition

Next we have the online fashion retailer. ASOS (LSE: ASC). It is currently the third most short-listed stock in the UK.

Now this is a stock I have owned in the past. It turned out to be a bit of a disaster though. At one stage, I was sitting on a big profit. However, my profit turned into a loss when the company’s revenue growth slowed after the pandemic.

I wish I had listened to the short sellers who were betting against the stock at the time.

Looking at ASOS today, things are not looking good. Revenue growth is pretty much non-existent and the company is losing a lot of money.

Of course the company can change things. After all, online shopping is still popular.

However, given the level of competition in this space today, change will not be easy.

A condition against UK users

Finally, we have a home improvement company. Kingfisher (LSE: KGF), which owns B&Q. It is currently the fourth most shorted stock in the UK.

This short trade seems to be a bet against UK and European consumers. Right now, many of them are struggling with high interest rates and inflation which means less disposable income for home renovations.

It is worth noting that in March Kingfisher announced its third profit warning in six months. The group said it was cautious on the overall market outlook because of the time lag between improving housing demand and home improvement demand.

Personally, I’m not as bearish on this company as I am on the other two stocks. If interest rates come down, the fortunes of the company may improve.

That said, I’m not tempted to buy. Given the high level of short interest, I think avoiding it is a smart move.

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