These stocks are primed for a short squeeze.
Short selling has gotten a lot of attention in 2021. Groups of retail traders on Reddit and other social media platforms have successfully orchestrated targeted buying campaigns in a handful of the most heavily shorted stocks in a deliberate attempt to generate short squeezes. Short squeezes are large, temporary spikes in a stock’s share price triggered when a significant number of short sellers are forced to cover — or buy out of their positions — all at once. Here are eight of the most interesting short squeeze candidates for investors to watch in July, according to Ortex Analytics co-founder Peter Hillerberg.
Lordstown Motors Corp. (ticker: RIDE)
Electric vehicle company Lordstown Motors began trading in March after completing a merger with a special-purpose acquisition company, but the stock has never gotten back to its pre-merger highs of about $31 back in February. One of the issues weighing on the stock is an allegation by short seller Hindenburg Research that the company has misled investors about demand for its EV pickup truck and the company’s production capacity. In June, the Wall Street Journal reported that the Department of Justice is probing Lordstown as well. Ortex estimates that 26.2% of Lordstown’s float, or free-trading shares, are currently held in short positions.
Workhorse Group (WKHS)
Given the investigation at Lordstown and problems at Nikola Corp. (NKLA) that resulted in the resignation of executive chairman Trevor Milton, short sellers appear to smell blood in the water in the EV startup space. Workhorse shares plummeted back in March when the U.S. Postal Service awarded a critical contract for next-generation delivery vehicles to Oshkosh Corp. (OSK) instead of Workhorse. Workhorse has since lodged a formal complaint in Federal Claims Court. Ortex estimates that 39.2% of Workhorse’s float is now held in short positions, but positive news related to its court challenge could ignite the stock.
Since the beginning of 2020, shares of home furnishings retailer Kirkland’s are up roughly 1,500%. In the most recent quarter, Kirkland’s reported 59.9% revenue growth and 123.1% net income growth, but short sellers may be wondering what will happen to home furnishings demand when there is no more social distancing, no more stimulus checks and no more booming U.S. housing market. Kirkland’s also faces growing online competition from Amazon.com (AMZN), Wayfair (W) and others. Ortex estimates that 57.7% of Kirkland’s float is currently held in short positions, making it a prime short squeeze candidate.
Arcus Biosciences (RCUS)
Arcus Biosciences develops immunotherapies for treating cancer. In late June, Arcus shares jumped after the company reported positive interim results from its Arc-7 phase two clinical trials, but critics pointed out the lack of details provided in the update as a potential red flag. Drug giant Gilead Sciences (GILD) has a 20% ownership stake in Arcus, which certainly provides some credibility to its research. However, biotech stocks are generally considered some of the highest-risk investments. Ortex reports that Arcus has 67.6% of its float held in short positions, but more positive pipeline news could send short sellers running.
In March, Support.com announced a reverse merger with Bitcoin miner Greenidge Generation Holdings. The merger has not been completed, but investors have very few options to bet directly on Bitcoin mining at this point. Support.com has long generated attention as a potential short squeeze candidate given its high short interest and history of extreme volatility, which it demonstrated following the merger news. Ortex estimates that 77.6% of Support.com’s float is held by short sellers, so the merger completion or even a rebound in cryptocurrency prices could be enough to trigger a major short squeeze.
Alset EHome International (AEI)
Alset EHome International builds affordable designer homes that have integrated smart technologies. The company completed its initial public offering in November 2020 at $7 per share and has been on a roller coaster ride ever since thanks in large part to its tiny 6.8 million-share float — the smallest of any stocks on this list. The smaller a stock’s float, the easier it is for a relatively small amount of trading volume to move its share price significantly, creating the potential for extreme volatility. Ortex estimates that 89.5% of Alset’s float is currently held in short positions.
KnowBe4 is a security software company that specializes in security awareness training. KnowBe4 completed its IPO in May, pricing shares at $16. Since then, the stock has traded as high as $36.67. The bullish price action was likely driven in large part by an increase in concern surrounding malware attacks after hackers temporarily shut down the Colonial Pipeline in May. KnowBe4 has announced a buyout of competitor Proofpoint Technologies (PFPT), which has been a bullish catalyst for the stock. KnowBe4’s estimated 121% short percent of float is reminiscent of GameStop Corp.’s (GME) before its big January short squeeze.
Marin Software (MRIN)
Marin Software is a cloud-based digital advertising specialist. After trading at less than $2 since early March, Marin shares skyrocketed to $27.26 in a matter of days on massive volume in early July. The company recently reported that its ad management platform will now allow users to manage Instacart ads, but the stock’s extreme price action appears more tied to its rising popularity as the latest so-called social media “meme” stock. Marin has pulled back a bit from its July highs in recent days, but Ortex estimates that 121.6% of the stock’s float is still held in short positions.
Short squeeze stocks that could take off in July:
— Lordstown Motors Corp. (RIDE)
— Workhorse Group (WKHS)
— Kirkland’s (KIRK)
— Arcus Biosciences (RCUS)
— Support.com (SPRT)
— Alset EHome International (AEI)
— KnowBe4 (KNBE)
— Marin Software (MRIN)
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8 Short Squeeze Stocks That Could Take Off in July originally appeared on usnews.com