Meme mania is alive and well on Reddit and elsewhere on the internet. Stocks with increased short interest remain a hot topic of conversation in key forums, attracting retail investors to the “apes vs. suits” battles that have become popular this year.
Today, Wall Street Memes lists two stocks that could be on the brink of a short squeeze – and possibly on their way to the moon.
(Read more from Wall Street Memes: GameStop Stock: Why NFT Could Be Big For The Company)
Basics on short squeezes
For a short squeeze to occur, a stock needs high short selling activity (above 15% short interest, as a rule of thumb) followed by a sudden spike in buying volume. If the conditions are right, short sellers are “squeezed” into closing their positions, as losses mount and margins are exhausted.
Substantial short selling is usually associated with a company facing problems with its business fundamentals. Lately, some retail investors have taken issue with the practice, as some of their favorite stocks have been the target of vicious short selling activity.
(Read more from Wall Street Memes: AMC Stock: Is CEO Adam Aron Doing The Right Thing?)
Workhorse Group Inc - $WKHS
Workhorse (WKHS) - Get Report is a startup electric car manufacturer that caught the attention of investors as one of the finalists in the lucrative $6 billion US Postal Service contract to replace its truck fleet. However, Workhorse ended up losing the contract to its competitor Oshkosh Defense (OSK) - Get Report.
What Analysts Have Said: according to Yahoo Finance, WKHS has a target price of $12.70 with a recommendation rating of Buy. However, in early June, Cowen downgraded the stock from outperform to market perform based on the following:
"Fairly valued following the recent rally which we view as not supported by fundamentals or company specific catalysts."
High short interest: the company is currently heavily shorted with almost 32% of short interest (data from Yahoo Finance on June 29). If fierce competition and high operating costs were not enough, Workhorse has recently dealt with supply chain issues. WKHS shares have a share float of 113.2 million and an average trading volume of 19.4 million per day.
WKHS stock performance: shares climbed 125% between mid-May and early June. However, they are currently 73% below the levels reached in early February, when the company was a finalist for the US Postal Service contract.
Ticker popularity: according to data from Swaggy Stocks (see below), WKHS had a high volume of mostly positive comments for much of June. The stock's performance has been in line with the volume of WSB (WallStreetBets) comments. Could a pickup in buzz around this stock lead to further price movement?
Clover Health - $CLOV
Medicare insurer Clover Health (CLOV) - Get Report, considered by some the king of SPACs, is another stock that has been highly appreciated by the ape community. The company, engaged in AI (artificial intelligence) applied to the medical field, has been the target of shorting partly due to debates around some of its business practices.
What Analysts Have Said: according to Yahoo Finance, the company has a consensus recommendation rating of underperform and a target price of $9.50. In its most recent report, JPMorgan downgraded the stock from neutral to underweight based on the following:
"Lowered most guidance metrics, including reducing the number of aligned beneficiaries under the direct contracting program in 2021 by 50%."
High short interest: according to Market Beat data, CLOV currently has a short interest of 27%. This could be motivated by Hindenburg Research's report that the Department of Justice has been investigating Clover Health for 12 potential infringements. The stock is also heavily traded, with a float of 129.1 million shares and average trading volume of 59.6 million.
CLOV stock performance: CLOV underwent a short squeeze in June, and the stock price climbed more than 200% between late May and early June. Since then, the stock has been falling week after week and has accumulated losses of 63% since the June 8 peak.
Ticker popularity: according from Swaggy Stocks (see below), CLOV's price performance has also been quite in line with the volume of comments on WSB. The stock also has an active, dedicated Reddit community with more than 35,000 active subscribers who follow it on a regular basis.
Of the stocks with high popularity among Redditors and elevated short interest, which is most likely to undergo a short squeeze next? Leave your vote below and feel free to comment.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)