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Short Sellers Circle: Under Scrutiny in Consumer Staples Stocks Short Sellers Circle: Under Scrutiny in Consumer Staples Stocks

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Consumer staples stocks in 2023 saw a collective decline of 6.5%, lagging significantly behind the broader market. This setback has sprung hope among investors for the sector’s resurgence in 2024, following the common narrative of cyclicality in markets. However, a compelling twist unfolds due to short interest that may cast a shadow on this sector’s recovery. It appears that short sellers have honed in on some consumer staples stocks, keeping a tight grip on their potential for growth.

Similar to how storytellers use foreshadowing to hint at upcoming developments, investors glean hints about how a stock might perform from various indicators. One such indicator is short interest, denoting the percentage of a stock’s float (the shares available for public trading) that are being sold short.

Stocks sold short are borrowed by investors with the anticipation that their prices will plummet before the borrowed shares need to be returned. Hence, stocks with a high short interest are more vulnerable to imminent downward movements in price.

Prior to delving into the specifics of the three consumer staples stocks on short sellers’ radars, it’s crucial to note that elevated short interest does not automatically spell doom for the stock. However, it does signify apprehension among institutional investors regarding certain aspects of the stock.

Hershey’s (HSY)

Hershey's milk chocolate pieces on a white plate on top of a wooden table

Source: shutterstock.com/VG Foto

Hershey’s (NYSE:HSY) has seen its stock price decline by approximately 21% in the past year, primarily attributable to soaring cocoa prices that are eroding profits. Despite the company’s attempts to mitigate these costs by passing them onto consumers, its February earnings report revealed that the adjusted earnings per share (EPS) remained flat year-over-year. Likewise, Hershey’s anticipates stagnant earnings for 2024.

Short interest in HSY stock has surged by 31% over the last month, with investors bracing for the repercussions of elevated cocoa prices on the company’s upcoming financials. This surge exemplifies a trend where institutional investors have been fervently offloading the stock over the past two quarters. Analysts have also bestowed Hershey’s stock with a consensus Hold rating.

Despite the stock’s 6% uptrend in 2024, pushing against a $200 resistance level, the lackluster earnings projection alongside an early Easter holiday dampens the outlook for a significant sales catalyst during what historically tends to be the company’s weakest revenue quarter.

Beyond Meat (BYND)

Editorial photo on Beyond Meat (BYND) theme. Illustrative photo for news about Beyond Meat - a producer of plant-based meat substitutes. BYND stock

Source: photo_gonzo / Shutterstock.com

Beyond Meat (NASDAQ:BYND) makes the list of consumer staples stocks under short sellers’ watchful eyes. The company’s full-year revenue of $343 million in 2020 marked an 18% decline from the previous year, reflecting a bleak earnings landscape.

Although Beyond Meat is looking to implement cost-saving measures to enhance its earnings outlook, the efficacy of such measures remains uncertain. The company, having gone public in 2019 with a mission to revolutionize perceptions of plant-based protein, faces escalating competition from other players in the plant-based market.

At a time when beef prices are soaring, one would assume that Beyond Meat’s products might become more appealing due to their comparative pricing. However, the company is yet to witness a surge in demand that would support a bullish growth narrative.

While short interest in BYND stock has dwindled by around 3.4% in the past month, a substantial 36% short interest in the stock persists, underscoring a palpable unease among investors.

PepsiCo (PEP)

Cans of PepsiCo's Pepsi soda are in a bucket of ice.

Source: suriyachan / Shutterstock.com

PepsiCo (NASDAQ:PEP) has endured a challenging period over the last 12 months amid concerns among investors regarding the rise of obesity-related medications and their potential impact on the company’s future profitability. Despite beating bottom-line expectations in every quarter of 2024, a slight revenue miss in the most recent quarter triggered a decline in PEP stock.

While the stock seems to have stabilized at current levels, delineating an apparent support, forecasting the upper bound remains more intricate. PepsiCo anticipates single-digit growth in organic revenue and earnings for 2024. Nonetheless, this has not deterred short sellers from betting against the company, leading to a 6% surge in short interest over the past month.

Of the trio under scrutiny, PEP stock emerges as a promising choice, attributed chiefly to the company’s staunch dividend payout. Pepsi stands as a dividend aristocrat, having increased its dividends for an impressive 52 consecutive years.

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Markoch is a freelance financial copywriter with over five years of experience in market coverage. He has been a contributor to InvestorPlace since 2019.

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