Short sellers were actively beefing up their positions in Cablevision Systems Corp. stock in the past month, more than doubling their holdings, while backing off one of their perennial favorite shorts: Charter Communications Inc.
Short sellers typically borrow large blocks of stock from institutional holders and agree to replenish the shares at a fixed date. These types of investors are betting that the price of the stock will fall between the time they borrow the shares and the time they have to replenish them, pocketing the difference as profit.
Short sellers are required to report their holdings to the Securities and Exchange Commission on the 15th of each month. A compilation is then published about eight business days later.
NASDAQ REPORTS IN
According to the National Association of Securities Dealers Automated Quotation system, the short position in Cablevision rose to 13.4 million shares on Nov. 15, more than double the 5.3 million shares the shorts held just a month earlier.
On the flipside, shorts considerably pulled back on their holdings of Charter to 68.8 million shares in November from 81.2 million shares in October.
Other cable-related stocks with large short positions include The Walt Disney Co., which saw its short position rise by nearly 5 million shares during the month to 45.45 million shares; DirecTV Group Inc., where shorts increased their holdings by 1.7 million shares to 17.6 million; and Comcast Corp., where shorts beefed up their holdings in its Class A common stock by 2.8 million shares but reduced their holdings in its Class A Special Common shares by 2.3 million shares.
The short position increase in Cablevision shares is likely due to the announcement in late October that the company’s largest shareholders — the Dolan family — had abandoned plans to take the company private for $7.9 billion.
The Dolans had proposed to buy the remaining interest in Cablevision they didn’t already own for $33.50 per share in cash and stock in a newly spun-out Rainbow Media Holdings in June, which sent the stock soaring as high as $33.90 per share.
After the Dolans said they would not pursue that strategy — and asked Cablevision’s board of directors to pay a $3-billion ($10.40 per share) dividend to all shareholders — the stock nosedived.
Shorts that bought Cablevision shares earlier in the month made out well: Cablevision’s stock price was $28.47 on Oct. 14, and dropped to $24.10 on Nov. 15.
The same held true to a lesser extent for short sellers of Comcast Class A shares: the price dipped from $27.30 on Oct. 14 to $26.47 on Nov. 15.
But shorts who bet Disney shares would fall hard between Oct. 14 and Nov. 15 got burned. Disney was up 11.4% ($2.67) during the period, to $26.06 on Nov. 15 from $23.39 on Oct. 14.
Charter has been a favorite of short sellers for a while — on June 15, 100.2 million shares of the company were shorted — as its stock has been on a steady decline. That was evident in the month between Oct. 14 and Nov. 15, when Charter shares dipped to $1.24 from $1.33.
Janco Partners cable and satellite analyst Matt Harrigan said the rising short position in cable stocks reflects the overall bearish sentiment on the sector.
“If you look at these stocks, there are not a lot of earnings, there’s not a lot of free cash flow,” he said. “I haven’t spoken to anyone who was particularly bullish on cable literally for months.”
And an added benefit to short sellers is that stock prices for the MSO sector are down about 10% since the beginning of the year.
As far as Charter goes, Harrigan said the decline in the short position in that stock might have more to do with lessening the tax burden on profits already realized rather than fears the shares were poised for an increase. “The issue there is tax efficiency — how greedy do you want to be? There’s no more juice left there, you’ve got to move on to a different target.”