Short-squeeze stocks have been running hot since 2021, and the selloffs have only increased investors’ curiosity about this phenomenon. Following the surprising GameStop (NYSE:GME) saga, many investors, including myself, were keenly interested in short-squeeze opportunities.
As 2023 unfolds, I can’t help but notice the investing landscape presenting various opportunities with short-squeeze stocks attracting a fair share of attention. Of course, these are very high-risk, high-reward bets that I’ll advise investors to stay away from unless they really know what they are doing.
With that in mind, I’ve identified three potential short-squeeze stocks that could experience significant growth this year.
Bed Bath & Beyond (BBBY)
Bed Bath & Beyond (NASDAQ:BBBY) stock is among the riskiest stocks in the market and is heavily shorted by Wall Street. The stock became a popular meme stock after the GME and AMC Entertainment (NYSE:AMC) drama.
If you wish to buy a short-squeeze stock, this is likely as close as it gets to a coin toss as the company continues to burn cash and accelerate layoffs and store closures. It will also have a leadership change in April, signaling unstable management.
It did have some positive developments with funding from Hudson Bay Capital Management, which recently agreed to fund another $100 million for the distressed business. Naturally, it’s not free money. The complex deal involves selling shares to Hudson Bay and other involved investors at a discount. These investors can then convert these shares to common stock at 72 cents each.
These are just temporary solutions, and I will discourage holding BBBY for the long term or investing a meaningful amount. But the short-squeeze potential here is excellent if the company can weather the storm until investors get more positive news.
Upstart (UPST)
Unlike Bed Bath & Beyond, Upstart (NASDAQ:UPST) is a business worth holding for the long term. It has faced significant headwinds in the past few weeks due to the banking crisis and a pessimistic outlook. However, the company has little bankruptcy risk in the near team, and the Federal Reserve’s bailout of banks is restoring confidence in the finance sector.
In addition, artificial intelligence is the talk of the town right now, something that plays a core role in this company’s business. Yes, rate hikes have substantially impacted Upstart, but I believe this is a business model that can thrive once it survives this market cycle. The market prices in one more quarter-point rate hike before a pause and rate cuts at the end of this year. With $422.4 million in cash, I believe it can endure the pain until more customers are comfortable taking loans again.
Finally, it has short interest at 41.02%, which could cause a short squeeze.
Marathon Digital (MARA)
Marathon Digital (NASDAQ:MARA) is another compelling buy, as crypto prices have been resilient this year. The company mines Bitcoin (BTC-USD) and sells a portion to cover expenses while building up a BTC reserve. It held 8,090 BTC at the end of January, up from 7,815 BTC at the end of December last year. That’s primarily due to record production of 687 BTC, up 45% month-over-month.
Of course, I do get the bearish sentiment among crypto due to the regulatory pressure. However, the company is reporting very impressive growth. One catalyst that does make me nervous is Bitcoin’s halving next year. It will essentially cut the company’s revenue by half unless BTC doubles in value by then. However, the company has been playing it smart by selling BTC as needed and building up a reserve. Historically, Bitcoin’s halving drives up the price in the long run.
Nonetheless, investors seem to have priced in that catalyst, and I see a lot of upside ahead for MARA stock.
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On the date of publication, Omor Ibne Ehsan 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.