Most-shorted Morrisons could see burnt fingers for shorters, Cavendish warns

15th Sep 2016 12:02

(ShareCast News) - Around 18% of Wm Morrisons' stock is currently out on loan, offering investors the potential for strong gains should the grocer continue to perform as well as its half-year results suggest, a fund manager said on Thursday.The FTSE 100 supermarket is reported to be the second most shorted UK stock currently, with rivals Tesco and Sainsbury's not far behind.Paul Mumford, fund manager at Cavendish said the amount capital out on loan suggested "a large technical short position which could lead to some burnt fingers if the company's fortunes continue to recover"."Should these positions be forced into reverse, prices will buoy." Mumford said food retailers are more vulnerable to low sterling after the Brexit vote, due to their relative reliance on on-the-spot purchasing, but maintained that there would be investment opportunities.He said: "Today's Morrisons' results confirm the company is doing a pretty good job of getting its house back in order. It has an advantage here thanks to its use of home grown produce."If sterling stays at the current level, he cautioned that input prices will continue to adversely affect grocery margins, giving rise to inflationary pressures, "this could in turn lessen the appetite for a price war".Mumford said retail shares have fallen back on Thursday due to the results and outlook from retail bellwether Next, which reported a slide in first half profits and sales, which led him to see value in the sector."With sterling low and Brexit uncertainties looming, investors are inevitably colder on domestic importers. However this makes the sector a good buying option for the medium term. Many retailers are fairly shielded from any short-term sterling dip thanks to hedging and seasonal purchasing, and while sterling may be under pressure now, it looks oversold."He added that the picture could look very different in a year's time, should the UK economy continue to hold up while the eurozone continues to struggle or deteriorate, sterling could quickly regain its safe haven aura, when momentum will swing back in favour of domestic brands."In the meantime, some of the slightly smaller companies within the sector, such as Laura Ashley, Moss Bros and Debenhams, are offering big yields."