Apple’s Most-Shorted Status Is a Tell

Last week, I was surprised to hear that Apple (AAPL) is now the most heavily shorted of all stocks in the U.S. markets. Investors have an accumulated $16.3 billion short position in the Cupertino-based tech giant.

This distinction previously belonged to Tesla (TSLA) , which had been the most heavily shorted stock for over two years. While Tesla shorts have been largely unsuccessful, the EV manufacturer is right behind Apple with an accumulated short position of $16.1 billion.

While I can understand the rationale behind a Tesla short, based on the stock’s valuation, Apple is a different story entirely. Tesla trades with a 12-month trailing price-to-earnings ratio of 109.11. Apple trades at a more reasonable 12-month trailing PE ratio of 27.01.

Apple also sits on a mountain of cash. While Apple’s cash position has dwindled over the past few years, as of June 30, 2022, the company had just over $48 billion. That’s enough money for an outright purchase of both eBay (EBAY) , which has a market cap of $25 billion, and homebuilder Lennar Corp. (LEN) , valued at $22.8 billion.

Apple isn’t shy about using its cash to buy back shares, spending $467 billion on repurchases from 2011 through 2021.

Apple’s reasonable valuation and penchant for buybacks make it an odd candidate for a short. Some have suggested that because Apple is the largest component of the Dow 30, the Nasdaq 100, and the S&P 500, shorting the stock is a proxy for shorting the market.

Here’s my thought process: If that’s true, why would anyone settle for “shorting the market?” If you believe that the market will fall, and have significant evidence to back that view, there are better short candidates than Apple.

For example, Disney (DIS) , despite its weak performance over the past 12 months, has a trailing P/E ratio of 66.51. Amazon’s (AMZN) trailing P/E is even higher than Tesla’s, at 121.83.

I don’t believe that investors are shorting Apple as a proxy for the market. Not while lower-hanging fruit is still on the tree. As a long-time shareholder, it pains me to say this, but I believe this is company-specific.

I think investors are concerned that iPhone 14 won’t be a blockbuster. Critics claim the latest version of the smartphone has too many similarities to its previous iteration, the iPhone 13. While owners of older models will upgrade, there is no compelling reason for an iPhone 13 owner to buy the latest model.