Going Short on Woolworths? You Might Need to Rethink

In the September quarter, Woolworths Group Limited (ASX: WOW) represent the profitable short, however, moving forward the situation might change and the short sellers on the stock might need to reevaluate their positions. The trend from the past few months show that the short positions on Woolworths have been declining. As of September 28, 2018, the short positions on the stock stood at 2.98%, in August 2018 it was 3.19% while in June 2018 and March 2018 it was 3.38% and 4.76%, respectively.

The share price of Woolworths has witnessed a fall of over 12% from the July 12 to September 20. However, other companies like Westpac Banking (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Rio Tinto (ASX: RIO) and Flight Centre (ASX: FLT) also reflected profitable shorts for the quarter ended September 2018. According to ASIC (Australian Securities and Investments Commission), the market participants have positive for the banking stocks. However, still, the risks are looming over the banks.

According to the Macquarie Wealth Management, the interim report which was released recently by the Royal Commission is expected to have a limited positive impact on the outlook for the banking stocks. The report declared that greed was the primary factor which led banks to follow unethical practices. The banking sector is at the discount primarily because of the concerns which the banks have been dealing with lately like compliance costs and higher regulatory pressures. According to Macquarie, the banking stocks represent the buying opportunities primarily because they are being traded at discount. It has also given following recommendations:

  • On CBA: Neutral, while the target prices stood at $76.50.
  • On Westpac: Neutral rating
  • On Australia and New Zealand Banking Group Limited (ASX: ANZ) and National Australia Bank Limited (ASX: NAB): Outperform rating.

Citigroup has improved its rating on Woolworths and awarded the stock a “Buy.” It believes that the decline in the stock price should be treated as the buying opportunity. Citigroup gave a target price of $32 on Woolworths.

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