Short sellers aren't afraid of many stocks in the S&P 500. But one stock they won't touch is Warren Buffett's Berkshire Hathaway.
And like Berkshire Hathaway, eight S&P 500 stocks including Alphabet and Walmart have less than 0.55% of their shares outstanding in the hands of short sellers, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's extremely low. It's much below the 2.4% of the shares outstanding controlled by short sellers of the average S&P 500 company.
Short selling is likely to return to focus. Some suspect short-selling is a component of the volatility in bank shares. And it's a market trend neither Buffett nor long-term partner Charlie Munger say they have much use for. Short selling is one of the investing topics Buffett discusses at his annual shareholders' meeting.
"Value investors will pay close attention to what Warren Buffett and Charlie Munger have to say," said Christine Short of Wall Street Horizon.
S&P 500 Stocks That Scare The Pants Off The Shorts
Nothing scares shorts more than a stock that tends to rise. When a stock rises, short sellers, who bet a stock will fall, faces unlimited losses. They must buy the stock back at the higher price to close the trade.
And that's why short sellers tend to look for seriously wounded or zombie companies, which are likely to fall. And in contrast, they skip stocks and companies seen as so rock-solid a big decline it's unlikely.
Following which stocks short sellers are avoiding is helpful in the current market. Investors are prizing stability, including of shares of companies with the highest credit ratings. Both Microsoft and Johnson & Johnson, the only two AAA-rated S&P 500 companies left, both have low short interest.
Berkshire Hathaway Keeps Short Sellers Away
You'd have to have a near death wish to short Berkshire Hathaway. The stock rises almost like clockwork. Shares of Buffett's famous holding company is up 197% in the past 10 years, easily topping the S&P 500's 151% rise in that time.
As a result, just 0.08% of the company's 1.5 million shares outstanding are controlled by shorts. That's the lowest short interest in the S&P 500. It's important to note, too, shorting the stock is difficult as there are so few shares outstanding to borrow. Buffett himself owns 227,416 shares, or 15.6% of the outstanding shares. Large blocks, too, are controlled by friends and family.
Google parent company, Alphabet, is another stock short sellers appear to be afraid of. Shorts control just 0.4% of its shares outstanding. Alphabet isn't as stable as Berkshire Hathaway. But the long-term direction of its stock is definitely up. Alphabet shares, despite some wild downturns, is still up 386% in the past 10 years.
With Walmart, another S&P 500 stock shorts avoid, stability wards off the negativity. Yes, the retailer faces threats from online retailers. And the stock is only up 93% in the past 10 years, lagging the S&P 500's 151% rise. But with Walmart, the machine keeps turning. The company's adjusted profit-per-share rose every year in the past five years. As a result, just 0.5% of outstanding shares are controlled by shorts. Many of its shares, too, are controlled by insiders, which makes borrowing harder.
Buffett may not be a fan of shorts. But it looks like the feeling is mutual.
Solid Stocks Shorts Shun
Lowest short interest as percent of shares outstanding
| Company | Ticker | Short interest % of sh. outstanding |
|---|---|---|
| Berkshire Hathaway | 0.08% | |
| Alphabet | 0.36 | |
| Walmart | 0.45 | |
| Chubb Limited | 0.47 | |
| Philip Morris International | 0.47 | |
| Mastercard | 0.52 | |
| Microsoft | 0.53 | |
| Johnson & Johnson | 0.54 |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
