In 2023, consumer staples stocks were down a collective 6.5%, vastly underperforming the broader market. That has made investors bullish about the sector in 2024. As the story typically goes, a sector that underperforms one year often outperforms the next year. However, short interest creates a plot twist that may keep this sector down. At least, that seems to be the case for some consumer staples stocks that short sellers are targeting.
Storytellers frequently use foreshadowing to hint at future developments in the story. Similarly, investors frequently receive clues about what direction a stock may move. One of those is short interest. This refers to the percentage of a stock’s float (the number of shares available to the public) that are being sold short.
Shares sold short are borrowed and sold as investors hope the share price will drop before the borrowed shares are returned. Therefore, stocks with high short interest may be more likely to move lower in the near future.
Before we look at the three consumer staples stocks that short sellers target, it’s important to remember that high short interest doesn’t mean stocks will go down. However, it does mean that institutional investors see something in the stock causing them to be cautious.
Hershey’s (HSY)
Hershey’s (NYSE:HSY) stock is down about 21% in the last 12 months. The culprit is rising cocoa prices that are eating into earnings. And this is despite the company’s mostly successful efforts to pass costs along to the consumer. In the company’s February earnings report, the company’s adjusted earnings per share (EPS) were flat year-over-year. The chocolate maker is also forecasting flat earnings for 2024.
Short interest in HSY stock is up 31% in the last month as investors expect the impact of cocoa prices to show up in the company’s upcoming earnings. This continues a pattern of institutional investors aggressively selling the stock in the last two quarters. Analysts also give Hershey’s stock a consensus Hold rating.
Still, HSY stock is up more than 6% in 2024, pushing against a resistance level of around $200. However, earnings are not likely to provide a boost, and with an early Easter, there’s no major event to drive sales in what is historically the company’s weakest quarter in terms of revenue.
Beyond Meat (BYND)
It’s not hard to understand why Beyond Meat (NASDAQ:BYND) is one of the consumer staples stocks that short sellers are targeting. The company’s full-year revenue of $343 million was 18% lower than in 2022. And the earnings picture isn’t any better.
The company is pledging to undertake cost-cutting measures to improve the outlook on earnings. But cost-cutting only goes so far. Beyond Meat went public in 2019 on a mission to change how people thought about plant-based protein. They’ve succeeded in some ways, but the company faces increased competition from other plant-based products.
There was hope that the inflated price of beef would have made the price of Beyond Meat’s products more appetizing. But that hasn’t been the case either. And without more demand, it’s hard to make a bullish case for future growth.
The short interest in BYND stock has been down about 3.4% in the last month. However, there’s still about 36% short interest in the stock. That should concern investors.
PepsiCo (PEP)
PepsiCo (NASDAQ:PEP) has been under pressure for the last 12 months as the rise of obesity drugs has made investors skittish about the company’s future earnings. PepsiCo beat on the bottom lines in every quarter in 2024. However, a slight miss on the top line in the most recent quarter was all it took to lower PEP stock.
The good news is that the stock looks like it’s found a floor, but the ceiling may be harder to define. Pepsi is guiding to single-digit growth in organic revenue and earnings in 2024. But that hasn’t stopped short sellers from betting against the company. Short interest is up 6% in the last month. And while the overall percentage of the stock float is low, it’s still weighing on the stock.
Of the three stocks on this list, PEP stock looks like the best buy if for no other reason than the company’s dividend. Pepsi is a dividend king that has increased its dividend for 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.