It’s always a good idea to keep track of which shares traders are betting against, I feel. Right now, former FTSE 100 stock and shopping centre owner Hammerson (LSE: HMSO) is among the most ‘shorted’ on the UK market.
It’s not hard to see why this real estate investment trust is so despised. With retail sales still sluggish as a recession bites, the owner of sites such as Highcross in Leicester and Victoria in Leeds is feeling the pain.
A few weeks ago, the firm revealed that just 41% of rent had been collected over its fourth quarter. This was lower than the 59% collected for Q3. It’s also a world away from the 97% achieved in Q1.
The longer the pandemic persists, the more pressure this puts on Hammerson’s balance sheet. Can another cash call be far away?
More hated than Hammerson
Trading at 20p a pop, shares in Hammerson look like a classic value trap. Even if ‘bricks and mortar’ retail is able to recover after the coronavirus subsides, the huge growth in online shopping shows no signs of abating. Factor-in recent management issues and the mid-cap looks to me to be more trouble than it’s worth.
Having said this, two FTSE 100 stocks — educational products and services provider Pearson (LSE: PSON) and supermarket Sainsbury (LSE: SRBY) have even bigger short positions.
Have the valuations of these top-table titans dropped far enough to now make them bargains for patient Foolish investors?
Pearson was a favourite with the shorting community long before the coronavirus arrived. Even now, it’s still the sixth most hated stock on the market according to shorttracker.co.uk. That seems fair based on recent trading.
Earlier in October, the self-styled ‘world’s learning company’ said that sales had declined by 14% over the first nine months of 2020 due to the closure of test centres and schools. Revenue in the UK was particularly hard hit by the cancellation of exams.
With “larger than usual uncertainties” likely to be felt in Q4, Pearson could only say that trading for the rest of 2020 would be “broadly in line with market expectations“. That’s hardly bullish. However, one could argue this is already priced-in.
Shares in Pearson currently trade on a little less than 13 times forecast FY21 earnings. That could make it a decent contrarian buy, especially as the FTSE 100 company said that online learning sales had helped to soften the blow from the pandemic. I’d certainly be more bullish on Pearson than I would on Hammerson.
Cheap for a reason
You might expect the UK’s second-biggest supermarket to be in something of a purple patch. After all, the coronavirus confined us to our homes earlier in the year. There’s a possibility of it doing the same again before 2020 ends.
It would seem traders don’t agree. At the time of writing, Sainsbury is the eighth-most shorted stock on the market.
A forecast price-to-earnings (P/E) ratio of just under 11 suggests the shares are a bargain but I’m not so sure. As well as having to cope with competition from the German discounters and the Ocado/M&S tie-up, there’s a truckload of debt on the balance sheet. Margins are wafer-thin too.
Even if/when a vaccine to Covid-19 is found, I can’t see Sainsbury bouncing back to the same extent as other stocks. With dividends on hold, I’d steer clear.
The post These FTSE 100 shares are more hated than Hammerson. Are they too cheap for me to ignore? appeared first on The Motley Fool UK.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020