3 UK shares I’d avoid because hedge funds expect them to fall

first_img3 UK shares I’d avoid because hedge funds expect them to fall Edward Sheldon, CFA | Wednesday, 20th January, 2021 | More on: CINE PFC SBRY Enter Your Email Address Image source: Getty Images. FREE REPORT: Why this £5 stock could be set to surge Get the full details on this £5 stock now – while your report is free. Simply click below to discover how you can take advantage of this. Are you on the lookout for UK growth stocks?If so, get this FREE no-strings report now.While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.And the performance of this company really is stunning.In 2019, it returned £150million to shareholders through buybacks and dividends.We believe its financial position is about as solid as anything we’ve seen.Since 2016, annual revenues increased 31%In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259Operating cash flow is up 47%. 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More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. One thing I always keep a close eye on as part of my investment research is the list of the most shorted UK shares. These are the shares that hedge funds and institutional investors are betting heavily against.When stocks are heavily shorted, it pays to be careful. The hedge funds don’t always get things right yet, quite often, they do. Carillion, Thomas Cook, Debenhams… these were all heavily shorted stocks and look what happened to them.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Here, I’m going to highlight three UK shares being shorted heavily right now. Given the high level of ‘short interest’ on these stocks, I’d steer clear.These UK shares look riskyOne of the most shorted stocks on the London Stock Exchange right now is cinema operator Cineworld (LSE: CINE). According to shorttracker.co.uk, 9.7% of its shares are being shorted. That’s a worrying level of interest.It’s not hard to see why the hedge funds are targeting Cineworld. For starters, 2021 is likely to be extremely challenging for cinema operators due to Covid-19 restrictions. Even after vaccines are rolled out, admission numbers are likely to remain depressed.Secondly, Cineworld has a huge debt pile. In a recent trading update, the company advised it now has aggregate gross debt financing of $4.9bn. This makes the company vulnerable financially.Overall, Cineworld is a short seller’s dream. The company faces huge challenges due to Covid-19 and has a very weak balance sheet. Given the high level of short interest, I’d avoid the stock.Criminal investigationTurning to the oil and gas sector, Petrofac (LSE: PFC) is another UK share I’d avoid. It’s currently the fifth most shorted stock in the UK, according to shorttracker.co.uk, with 7.9% short interest.It’s quite obvious why this stock is being targeted. Currently, Petrofac is being investigated by the Serious Fraud Office in relation to bribery allegations associated with three historic contract awards in the UAE in 2013 and 2014.Last week, Petrofac announced that a subsidiary employee has admitted additional charges under the UK Bribery Act 2010. This resulted in the company’s share price crashing more than 30%. Clearly, the hedge funds believe there’s more downside on the cards here. I’d steer clear.Losing market shareFinally, Sainsbury’s (LSE: SBRY) is also a stock I’d avoid. It’s currently the third most shorted UK share and sports short interest of 9.3%.Sainsbury’s doesn’t have obvious problems like Cineworld and Petrofac. However, digging deeper, there are some issues to be aware of.The first is Sainsbury’s is rapidly losing market share to competitors such as Ocado, Lidl and Aldi. In January 2017, its market share was 16.5%. In December 2020, however, its market share was 15.7%.The second is the supermarket giant has a large amount of debt on its balance sheet. At 19 September 2020, net debt was £6.2bn.It’s also worth pointing out that Sainsbury’s shares have had a good run recently. Since the start of September, the stock has risen about 40%. Perhaps the short sellers see this share price rise as excessive.Whatever the reason they’re short, I’m steering clear of this UK stock. When hedge funds are betting against a stock, caution is warranted. See all posts by Edward Sheldon, CFAlast_img