When the market is trending upward, investors are always looking for the quick, technical move that could be caused by a short squeeze. As we recently saw from GameStop (GME) - Get GameStop Corporation Report, AMC (AMC) - Get AMC Entertainment Holdings Inc. Class A Report and others, the gains can be very large, with a squeeze pushing a stock higher for days if not weeks.
The list of highly-shorted stocks changes periodically. Names like Tesla are always on the list as they are constantly shorted, in addition to being used in arbitrage techniques related to convertible arbitrage (where an investor is long convertible bonds and short the commensurate amount of stock, earning the coupon/yield on the bond). The arbitrage technique is not a bearish play but can serve to show high short interest in the name.
The current environment shows an appetite for squeezing shorts, a brazen move akin to poking at a sleeping animal. Eventually, they will get upset, rattled and start attacking back. Short sellers execute short trades for a myriad of reasons (accounting issues, excessive valuation, arbitrage, management fraud, mergers/acquisitions and others). They then often wait for the “other shoe to drop,” assuming their research is correct.
While the market continues to play music, there is time to dance. If short squeezes are a way to profit, there are plenty of names out there that could qualify. Who knows if Reddit’s WallStreetBets members can generate another big squeeze? I don’t expect to see another run like a GameStop for some time, however; that was truly an epic squeeze.
However, here’s a few that could be of interest:
1. iRobot (IRBT) - Get iRobot Corporation Report The vacuum company is a heavily-shorted name that is quite volatile, especially around earnings time. The float of the stock is rather small, so erratic price movements are common.
2. CarParts.com (PRTS) - Get CarParts.com Inc. Report A highly volatile name that attracts short sellers due to its competitive disadvantages (noted by shorts) and high valuation. CarParts.com was a target of the WallStreetBets crowd last month.
3. SunPower (SPWR) - Get SunPower Corporation Report A recent high flyer that has moved substantially higher with the potential for alternative power under the Biden Administration. The stock has gained more than 110% since Election Day and shows plenty of froth, trading now at its highest level since 2008.
4. The Children’s Place (PLCE) - Get Children's Place Inc. (The) Report A favorite of short sellers here, this retailer has been very strong since the election and put up some good holiday numbers. Short interest had been much higher in the summer, but it’s still elevated.
5. PetMed Express (PETS) - Get PetMed Express Inc. Report A heavily-shorted name from last year as fund managers look for the competition to cripple PetMed. The stock ran up in the frenzy last month but has since calmed down.
6. Workhorse Group (WKHS) - Get Workhorse Group Inc. Report A favorite of the momentum crowd, this stock has been on an unsustainable ride up, and short managers have noticed. The stock was up nearly 200% since the election in hopes for their electric power generation, delivery and utility vehicles. Workhorse was a penny stock just two years ago; now it’s trading at $32.
7. National Beverage (FIZZ) - Get National Beverage Corp. Report Another target of the WallStreetBets crowd last month, this stock was steadily rising even before the short squeeze occurred. Short interest zoomed up at the start of 2021.
Trolling the short-selling list is not a practical game. The squeeze that occurred recently was a rare event, but it could be duplicated if all the buyers were in alignment as they were in GameStop’s case. The buying effort was extremely vicious and the short sellers paid dearly.
We’ll see if something similar can happen again.
Bob Lang is a regular contributor to Real Money, TheStreet’s premium site. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Stephen Guilfoyle and others.