Last year, the phenomenon of retail investors bidding up short-squeeze stocks or securities that featured intense bearish sentiment caught like wildfire. This year, circumstances changed dramatically. With the Federal Reserve set to raise the benchmark interest rate until inflation normalizes, the framework for highly risky ventures diminished.
Still, short-squeeze stocks represent powerful forces in the equities market. Theoretically, no upside limit exists for publicly traded securities. Therefore, taking a short position against a company could backfire infinitely, so to speak. To prevent such catastrophic loss, bears caught on the wrong side of market sentiment will seek to cover their trades. Naturally, doing so creates even more bullish pressure, benefiting long-side contrarians.
For this list of short-squeeze stocks, I specifically targeted companies listed in Fintel’s Short-Squeeze Leaderboard. They all feature a high short percentage of float and a high short ratio or days to cover. In other words, it’s better to target securities where bears face both volume and time pressure.
Nevertheless, even with the best precautions, short-squeeze stocks are risky. Therefore, only participate with money you can afford to lose.
|RILY||B. Riley Financial||$49.26|
Out of a list of 250 companies, department store giant Dillard’s (NYSE:DDS) ranks as no. 81 among short-squeeze stocks. DDS features a short percentage of float of 18.2% and 12 days to cover. Typically, a short percent of float of 10% or over and days to cover of 10 or more indicate stronger-than-usual bearishness.
Interestingly, Dillard’s commanded bullish sentiment earlier this year as it dominated competitors in the department store segment. On a year-to-date (YTD) basis through the Sept. 21 session, DDS gained almost 19%. Its closest rivals stand nowhere close to positive territory for the year. In addition, it’s worth pointing out that the benchmark S&P 500 index shed 21% YTD.
Moving forward, the potential deflationary risk that the Fed’s hawkish monetary policy presents poses major risks for DDS stock. However, it’s also possible that certain social dynamics — such as a full return to normal — could boost sales. While a dangerously contrarian idea, it’s possible the bears could be overextending themselves, making DDS one of the short-squeeze stocks to consider.
Blink Charging (BLNK)
On paper and without any other (especially economic) context, Blink Charging (NASDAQ:BLNK) shouldn’t rank among the short-squeeze stocks. However, according to Fintel, BLNK comes in at no. 199. The underlying firm — which specializes in providing electric vehicle (EV) charging infrastructure — features a short percent of float of 24%. Also, its days to cover is nine.
As seemingly everyone loves saying, the future of mobility is electric. In theory, this should help BLNK. Unfortunately, the problem is that EVs present an expensive profile. According to data from Kelley Blue Book earlier this year, a new EV averages nearly $63,000. With the median U.S. household income not far removed from this figure, not many folks can afford EVs right now.
Still, looking to the future, dynamics such as economies of scale and improved efficiencies may lower EV price tags. If so, charging will be a necessity. Not every occupied housing unit features a garage or carport, facilitating a large addressable market for Blink Charging. Therefore, BLNK could be an intriguing name among short-squeeze stocks. However, much caution is needed.
Tattooed Chef (TTCF)
Specializing in the development and distribution of convenient plant-based food products, Tattooed Chef (NASDAQ:TTCF) should resonate with the younger crowd. Unfortunately for embattled stakeholders, TTCF currently only resonates with bearish traders looking for a quick buck.
According to Fintel, Tattooed Chef ranks no. 201 among short-squeeze stocks. TTCF features a short percent of float of 27.4% and 15 days to cover. This dynamic leaves little space for bears to run or jump should the negative trade go awry.
Of course, for a short squeeze to materialize, Tattooed Chef must attract enough long-side traders to blow up the bears. Fundamentally, younger demographics such as millennials and Generation Z broadly care about sustainability issues. Research demonstrates that these age cohorts embrace plant-based meat products.
Still, TTCF presents significant risks because only so much speculation-earmarked funds exist to go around. For the record, TTCF has plunged almost 65% so far this year.
Camping World (CWH)
Back during the initial onslaught of the coronavirus pandemic, Camping World (NYSE:CWH) represented one of the contrarian long-side ideas, for obvious reasons. With a mysterious virus floating around, people who wanted to vacation and had the means to do so could travek safely via road trips.
These days, CWH garners attention but for the opposite reason. Per Fintel, the recreational vehicles specialist ranks as no. 152 among short-squeeze stocks. CWH features a short percent of float of nearly 26% while also commanding 10 days to cover. Essentially, as society gradually became less fearful of Covid-19, the bullish case for Camping World diminished. Still, is that the end of this contrarian narrative?
Flying in the new normal imposes myriad inconveniences such as cancelled flights and massive crowds. Therefore, CWH might make a comeback though you need to be careful with this thesis.
Specializing in outdoor grills and related cooking equipment, Weber (NYSE:WEBR) fundamentally suffered disproportionately during the initial onset of Covid-19. With government bodies clamping down on social mobility, backyard gatherings didn’t really fly for obvious reasons. However, in theory, the relaxing of government mandates and mitigation protocols should help WEBR.
For now, the underlying security makes the rounds among short-squeeze stocks. Specifically, Fintel pegs WEBR as no. 31. The company features a short percent of float of 44.7% and 12 days to cover. Nevertheless, some contrarians may be tempted to bid up WEBR, particularly because of that massive short position.
From a bigger perspective, it’s possible that Weber could benefit from present troubling economic factors. With the wider economy shifting between inflationary and deflationary forces, consumers could elect to avoid pricey restaurants. In so doing, the backyard BBQ could make a comeback. Still, this is one of the riskiest ideas among short-squeeze stocks so approach carefully (if at all).
B. Riley Financial (RILY)
Following the spring doldrums of 2020, B. Riley Financial (NASDAQ:RILY) managed to post incredible returns, aiding its investors during a wildly bullish cycle. In addition, the company managed to underwrite several initial public offerings (IPOs) during the equally wild IPO cycle of 2021. However, with the arena for new public listings apparently dying, the bears began targeting RILY.
Per Fintel’s data, B. Riley features a short percent of float of 17.9% and 8 days to cover. Fundamentally, it’s not difficult to see why many investors now have a dim view of RILY. With the Fed pivoting the economy toward a more deflationary environment, investor sentiment slipped significantly. Yet it’s under deflation that financial services become relevant and valuable.
During inflationary periods, investors must do something with their money because their purchasing power erodes. Under deflation, purchasing power increases, meaning that any investment opportunity must be extraordinarily compelling. Since B. Riley hires some of the best market experts, it should be incredibly relevant. Still, as with other short-squeeze stocks, RILY requires a cautious hand.
In an earlier paradigm when social media networks weren’t as robust as they are today, Groupon (NASDAQ:GRPN) managed to perform very well. However, as these networks improved, companies offering discounts to their customers lacked a need for middlemen entities. Sadly, this dynamic left GRPN reeling because of relevancy issues.
As of this writing, Fintel ranks GRPN as one of the “top” short-squeeze stocks, no. 69 to be exact. Groupon features a short percent of float of 52.6% and nine days to cover. Inevitably, these metrics will attract at least some bold contrarians to take an opposite-side bet to blow up the bears. It could happen. However, I will urge extreme caution.
Under the most optimistic of scenarios, it’s possible that financially hurting consumers will seek deals. Given that Groupon still features some brand cachet for its platform, it could help facilitate said deals. However, this is an extremely competitive arena so prospective market participants must exercise caution.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.