• While the stock market has bounced back from its March collapse, Ben Axler, founder of $330 million short-seller Spruce Point Capital, believes there's still a correction to come. 
  • He's eyeing the consumer discretionary industry for potential targets.
  • The pandemic has made things like a cosmetic procedure non-essential — one of the reasons Axler is shorting Align, the company that creates invisible braces Invisalign.
  • Axler now has to be wary of struggling companies receiving a government bailout before the stock falls far enough. 
  • "Does this business need to exist?" asks Axler.
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A short-seller might have been strained for opportunities during the extended bull market, when stocks climbed upward, often without any hitch.

But now, as the worldwide pandemic has shut down global economies but not hurt the stock market to the same extent, short-sellers like Ben Axler, founder of $330 million Spruce Point Capital, have companies to pick from.

"We believe there's a disconnect from where the economy is at, and where unemployment numbers are and where productivity is," Axler said in an interview with Business Insider.

The industry he is focusing on the most is the consumer discretionary space; he was already short the company that makes the invisible braces Invisalign, and believes that company will continue to struggle since the procedure isn't a necessary medical procedure.  

A new challenge now for short-sellers is vetting opportunities when everyone is confined to their homes, and minding the public relations aspect of being publicly against a company during a pandemic. 

"Clearly, this pandemic will make us think more broadly about what industries to dig into and which to avoid."

For instance, Axler was short Weis Markets, a grocery store chain in the mid-Atlantic, and closed out of the position last year after the stock fell roughly 20%. Now, the chain has shot back up to its highest stock price since 2017, as people flood supermarkets for food and other supplies, like toilet paper, but Axler said he wouldn't short a grocery store right now.

"People need to eat, obviously," he said. "We don't want to be critical of Weis when people are going to stock up ... at some point, we will revisit, but not now."

Align Technology, the company that manufactures the Invisalign braces, and Weis did not immediately respond to requests for comment.

The possibility of a government bailout is something that cuts distressed investors and short-sellers down at the knees. For Axler, it's a new consideration he has to add to his formula before making an investment. The decisions by the federal government already have been surprising.

"People don't need to go on a cruise, people don't need to go to an amusement park, people don't need to go to the movies," he said. 

Those types of businesses are often very leveraged with debt, making them attractive to short-sellers who are trying to find companies before the implode. Six Flags, for instance, was one of dozens of companies to adopt a poison pill to prevent activist investors from taking over, and AMC Theatres and Chuck E. Cheese are both under massive debt loads that might force them into bankruptcy.  

"We try to look at it as a standalone company, and see if it can stand alone without government help. Does this business need to exist?" Axler said.

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