Move over, GameStop (NYSE:GME). For investors on Reddit’s r/WallStreetBets and other online forums, there’s a new crop of short-squeeze stocks in their sights. The heavily shorted stocks that soared and crashed during February’s meme stock madness may no longer be fantastic trading opportunities.
Where should investors and traders look for new ideas, then? Many of the recent investing trends may now be broken. Think EV (electric vehicle) stocks, SPAC (special purpose acquisition company) stocks, even your more Reddit-fan favorites in the cannabis and crypto mining spaces.
Yet, for some stocks with high short interest (percentage of shares sold short), all it’ll take is a breadcrumb of positive news to fuel a big rebound. Sure, whether this happens in the next week, next month, or much further down the road, is the big question.
Risk runs high in a lot of these names, given their speculative business models, and for many of them, their still-rich valuations. But, while there’s risk of further declines, possible gains on a squeeze more than make up for it.
So, which of these short-squeeze stocks should be on your radar? Consider these seven names that have room to pop:
- C3.ai (NYSE:AI)
- Blink Charging (NASDAQ:BLNK)
- Clover Health Investments (NASDAQ:CLOV)
- Carvana (NYSE:CVNA)
- Discovery Communications (NASDAQ:DISCA)
- Root Inc. (NASDAQ:ROOT)
- Support.com (NASDAQ:SPRT)
Short-Squeeze Stocks: C3.ai (AI)
Source: Phonlamai Photo / Shutterstock.com
With around 20% of its outstanding float sold short, the “smart money” is wagering that artificial intelligence play AI stock is overhyped. Admittedly, the bears make a convincing case. Not only due to its rich valuation (forward price-to-sales ratio of around 37.1x). Its mixed results as of late raise some concern as well.
But, as I recently discussed, its recent weakness may be a sign now’s the time to cautiously buy C3.ai stock. Why buy now, when so many on Wall Street are betting big against it? Yes, in the near term, it’s questionable whether the company can live up to its still-inflated valuation. Yet, long-term trends remain fully on its side.
The corporate world is increasing, not decreasing, its use of AI to make key business decisions. Not only that, this company is an early mover in this space. In turn, that means it stands to gain the most from this large-scale trend. To fully play out, it needs some time. But, there is a path for shares to see a quick boost in the near term.
If positive news on AI stock hits the street, investor confidence in its long-term prospects will pick back up. Given the short side is a crowded trade, we could see a big pop, as shorts cover their positions. It’s been beaten down heavily, from a high of $183.90 per share, down to around $64 per share today. Yet, with that, even a partial recovery would mean a big boost from its current trading prices.
Blink Charging (BLNK)
Source: David Tonelson/Shutterstock.com
Between November and February, any stock with exposure to the EV megatrend was on fire. This made perfect sense, given the election of Joe Biden as the 46th U.S. president meant big changes ahead for America’s electric vehicle agenda. But, investors have realized they put the cart before the horse. That’s meant a tremendous pullback for this sector over the past two months.
And, it’s been EV charging plays like BLNK stock that have seen the biggest selloffs. After getting bid up more than six-fold thanks to the Biden boost, shares have since fallen from $64.50 per share to around $346 per share. Many have taken the short-side of this trade (38.4% of outstanding shares sold short). But, there may be room for one more rally.
How so? Wall Street is fully aware of Biden’s recent $2 trillion dollar infrastructure plan. Current sentiments suggest the American Jobs Plan faces some challenges while it passes through the U.S. Congress, even with Biden’s party (the Democratic Party) controlling both chambers. Yet, even if it sees some revisions, chances are the parts relevant to Blink (funding to build out America’s EV infrastructure) will likely stay on the table.
Yes, to some extent, the valuation of BLNK stock, along with names such as ChargePoint (NYSE:CHPT), already factor in infrastructure bill-related upside. But, given the high short-interest, any sort of progress with this catalyst may be enough to, at the very least, give shares a dead cat bounce.
Short-Squeeze Stocks: Clover Health Investments (CLOV)
In the early months of 2021, SPAC impresario Chamath Palihapitiya looked invincible. The Silicon Valley investor, who has taken many hot startups public via blank-check companies, was flying high. His legion of fans were seeing big gains with many names he backed, including Virgin Galactic (NYSE:SPCE) and OpenDoor (NASDAQ:OPEN). But, even then, CLOV stock, another one of his major holdings, was facing major issues.
Namely, talk of it being under federal investigation for its business practices. Short-seller Hindenburg Research broke the story back in February. Exposing that Clover, an insuretech play in the business of marketing Medicare Advantage plans, is getting scrutinized by the Department of Justice, shares fell from trading at a premium to their initial SPAC offering price ($10 per share) to prices well into the single-digits.
Flash forward a few months. Following the SPAC wipeout, Palihapitiya has lost a lot of his prior clout. Yet, even with the answered questions about the aforementioned investigation, and its backer’s diminishing reputation, short-squeeze investors are starting to find opportunity with Clover stock.
Shares have already seen a big pop in anticipation of an epic short-squeeze. Granted, the odds of this being the next GameStop aren’t that high. Yet, with short selling analytics firm S3 partners saying 145% of float has been sold short, there may be room for shares, trading for around $9 per share, to rally back up well into the double-digits.
Source: Jonathan Weiss / Shutterstock.com
With around a quarter of shares sold-short, e-commerce automotive play CVNA stock has been another stock the short-side has been betting big against. But, while its bears, like a Seeking Alpha contributor wrote back in March, believe a correction is coming, its red flags and shaky fundamentals may not be enough to keep speculators from bidding it up another time.
At first glance, it’s no wonder skeptical investors are waiting for the other shoe to drop. Much of its recent success has been driven by the novel coronavirus pandemic. As things return to the “old normal,” its sales could take a hit, as more customers return to brick-and-mortar used car lots. Yet, that’s not the only risk here. Valuation is another one. And, so is the company’s focus on top line growth at the expense of its profit margins.
In short, much to make the bear case with. Yet, that may not stop this story stock from producing short-seller losses once again. Next announcing quarterly results on May 6, better-than-expected numbers and any positive changes to guidance may be enough to pop CVNA stock in the near term.
Be careful, though. While its still a decent short-squeeze play, with the aforementioned red flags, this isn’t something to buy-and-hold at today’s prices. In the long term, there’s too much that could go wrong in the coming year or two to make this worthy of a large position.
Short-Squeeze Stocks: Discovery Communications (DISCA)
Source: Iftekkhar / Shutterstock.com
Discovery Communications went on a hot run the first three months of this year. But, after more than doubling, on its streaming growth prospects, shares saw an extreme drop in late March. As InvestorPlace’s Brenden Rearick wrote April 9, much of this had to do with the blow-up of Bill Hwang’s Archegos Capital Management. Similar to the situation with ViacomCBS (NASDAQ:VIAC), shares cratered, as Archegos’ prime brokers liquidated their positions in it.
But, now may be time to pounce on DISCA stock ahead of a short-squeeze. With this sector running so hot (perhaps due to Hwang’s concentrated positions), it makes sense why short-sellers jumped into the other side of the trade.
Yet, while a correction was due, shares at today’s prices (around $37 per share) are reasonably priced, at a forward price-to-earnings (P/E) ratio of around 13x. With earnings per share (EPS) set to rise by around 14.6% between 2021 and 2022, this company remains in growth mode, as the subscriber base of streaming offerings such as Discovery+ remains on the rise.
Unlike some of the other names discussed here, where the short-squeeze factor helps to outweigh valuation concerns, with DISCA stock you’re getting the best of both worlds. A growing business, at an attractive valuation, coupled with the potential for a massive rip, if those betting against it start unwinding their positions.
Root Inc. (ROOT)
Source: Jirsak / Shutterstock.com
Since debuting late last year, insuretech play Root has been on a downward trend. Over the past six months, shares have tumbled from around $27 per share, down to around $10 per share today. Why? Mainly due to short-sellers, who believe this company to be over-hyped and overvalued.
But, while numerous bears have beaten down to low double-digit prices, some analysts are bullish about its long-term prospects. Citron Research, which believes the provider of auto and homeowner’s insurance is a “misunderstood short,” given how its technology for pricing insurance could help to disrupt the industry.
However, sell-side analysts at BofA take a more cautious view of ROOT stock. Rating shares the equivalent of “sell,” and giving them a $9 per share price target, BofA’s analyst team cites the long path to positive cash flow (5 years) as a key issue. So, why dive in now, given the story needs a few years (at the very least) to fully play out?
With nearly 39% of shares sold short, it won’t take much to turbocharge Root, and send it soaring in the right direction. That’s not to say you shouldn’t tread carefully, as there’s still a bit of hype priced-in. Yet, with too many wagering against it, the odds of it popping on a squeeze likely exceed its chances of falling far into the single-digits.
Short-Squeeze Stocks: Support.com (SPRT)
Following Bitcoin’s (CCC:BTC-USD) recent flash crash, now may not seem to be the time to go long crypto mining stocks. Yet, Support.com, which in the process of merging with privately-held miner Greenidge Generation Holdings, may be one of the highest-quality plays in this space.
At least, that’s my view, as I broke it down in a recent article. Many investors in this former “cigar butt” stock may have cashed out when the aforementioned deal was announced March 22. But, this soon-to-be crypto play may have many advantages over already popular names like Riot Blockchain (NASDAQ:RIOT).
Per the deal terms, there’s plenty of value left on the table. This is to the benefit of existing SPRT stock investors. In addition, Greenidge may have a competitive edge, as it controls the power source for its crypto mining operations.
With its extremely high short-interest of 68.9%, bears are predicting shares continue to drop following their post-deal pop (from around $2.25 per share, up over $9 per share). Yet, if the recent crypto crash doesn’t spark the beginning of the end for Bitcoin prices, and more investors become aware of this being one of the strongest crypto mining plays out there, a massive short squeeze back toward recent highs could happen.
On the date of publication, Thomas Niel held a long position in Bitcoin. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.