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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Highly Shorted Stocks Under $5 Bought Up By Hedge Funds

Do you like to follow the buying trends of smart money institutional investors? We created a stock list with that idea in mind. [More Investing Ideas: Hedge Funds Are Buying 3 Rallying Technology Dividend Stocks]

We began by screening for stocks trading under $5 a share with bearish sentiment, with float shorts above 10%. High float short is a sign of bearish sentiment among short sellers, who benefit when share price falls. We further screened for increase in shares shorted month over month, a sign that bearish sentiment is still escalating. 

Then, for a contrarian edge, we screened for those with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future. 

If hedge funds are correct in their optimism, short sellers might be forced to cover their short positions quickly as share prices rise, lending possibility to a short squeeze, which sends price even higher. 

For an interactive version of this chart, click on the image below. Tool provided by Kapitall. Login to access free research tools, share practice portfolios, and more.

Short sellers are pessimistic about future stock price while institutional investors are bullish.  Do you think hedge funds are calling it right on these names? Use this list as a starting point for your own analysis.

1. Forest Oil Corp. (FST): Engages in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids primarily in North America.

Market cap at $565.58M, most recent closing price at $4.74. Float short: 17.51%.

Net institutional purchases in the current quarter at 6.4M shares, which represents about 7.38% of the company's float of 86.76M shares.

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