Tesla (NASDAQ:TSLA) is officially out of the hot seat… or sort of. News today shows that Chevron (NYSE:CVX), the oil and gas giant, has officially overtaken TSLA as the most-shorted large-cap stock in the U.S. market. Hazeltree, which aggregates data from 700 asset managers, reported that CVX stock now has more short bets than TSLA as of April.
That’s a title most companies don’t want to hold, as it indicates a large number of investors are growing increasingly bearish. But with how oil prices are trending, this move isn’t entirely surprising.
Oil prices are up on the day, but have been trading lower in recent weeks. Over the past month, prices of benchmark Brent have fallen from above $90 per barrel to just above $83 today.
Why Short Bets Are Piling Up on CVX Stock
Let’s be clear: Chevron isn’t your run-of-the-mill meme stock.
This is a company that is widely traded with incredible liquidity. So, like in the case of Tesla, when short sellers step up to the plate, it’s genuinely bad news for the stock.
One one hand, there is a lot to like about Chevron. The company is known for high free cash flow and earnings generation, a healthy dividend yield of 4.1%, and extremely attractive valuation, with a forward P/E of 12.6x. Those factors haven’t changed, and in fact, CVX stock is up nearly 8% in the year to date.
On the other hand, questions remain around what comes next for oil prices. Plenty of experts have been predicting a recession for some time. This would bring a drop in demand that would weigh on Chevron and its peers.
But this short interest surge simply doesn’t make sense to me right now. With an attractive valuation and YTD gains, I disagree with the market on Chevron.
On the date of publication, Chris MacDonald 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.
