Since the end of the late May/early June meme stock wave, short squeeze stocks remain out of favor. As seen in last month, names touted on Reddit’s r/WallStreetBets as names ripe for a squeeze sold off considerably. This left investors who got in too late holding the bag with substantial losses.
The past few weeks may have been tough for traders employing this approach. The overall trend may be on the wane. But that’s not to say several of the most heavily shorted stocks don’t have room to pop. How so? Right now, there are scores of names that have been beaten down by investors overreacting to negative developments.
Short-sellers have fanned the flames by fading these stocks as they headed lower. Yet looking at their respective details, it’s clear the factors that sent these stocks lower in the first place have been blown out of proportion. There is high possibility of these companies surprising investors by demonstrating their financial situation isn’t so dire They could leave their respective crowded short sides scrambling to cover positions.
So, which names could possibly see a tremendous pop from a squeeze? Any of these seven short-squeeze stocks, each with catalysts that could shift sentiment from negative back to positive, may do just that:
- Geo Group (NYSE:GEO)
- Ontrak (NASDAQ:OTRK)
- PubMatic (NASDAQ:PUBM)
- Support.com (NASDAQ:SPRT)
- Workhorse (NASDAQ:WKHS)
- SCWorx (NASDAQ:WORX)
- Exela Technologies (NASDAQ:XELA)
Short-Squeeze Stocks: Geo Group (GEO)
After getting hammered by President Joe Biden’s executive order that puts an end to privately-run federal prisons, Geo Group was squeezed back to near its pre-executive order prices thanks to the short squeeze frenzy that played out in late May and early June. Is another squeeze possible?
Yes, considering the factors at play. The so-called smart money is still betting against it, as 36.4% of its outstanding float remains sold short More improvements to the company’s prospects could help GEO stock continue to make its way out of single-digits, and toward levels it traded for just a few years back ($15 to $20 per share).
Sure, it still sounds bad that the current administration has pushed for this company, and its peer, CoreCivic (NYSE:CXW), to lose a market (Federal Bureau of Prisons and U.S. Marshals Service contracts) that make up a fair amount of their operations. Yet, this development does not impact state and local prison contracts, or contracts with Immigration and Customs Enforcement.
Oversold to a point where it trades at a dirt cheap forward price-to-earnings (P/E) ratio (4.2x), GEO stock could have ample room to soar, once the longs realize Biden’s order won’t put private prison companies out of business, and short-sellers quickly move to unwind their heavy short positions.
Six months ago, healthcare analytics play OTRK stock blew up, falling from over $90 per share, to less than $25 per share. What caused this, and why has it so far failed to recover, even partially?
As InvestorPlace’s Tezcan Gecgil broke it down July 12, the loss of one of its major customers, CVS Health (NYSE:CVS) unit Aetna, caused its massive price decline. The short side continues to bet against it. This may explain why it’s remained stuck near the $25 per share price levels.
Recent troubles, and heavy shorting of it aside, there may be a big opportunity here for those willing to take the long side of this trade. Ontrak may have lost a large amount of its sales when Aetna ended the relationship. But as seen from its revenue estimates for 2022 (projecting 37.25% growth), any additional trouble for the top line could be short lived. Ontrak appears well positioned to more than make up for the loss of Aetna, with scores of other potential clients.
It may not have room to zoom back to its pre-crash prices above $90 per share. Yet, further news that confirms it’s still a fast-growing company could enable it to see another big boost. Consider this one of the short-squeeze stocks to keep on your radar.
Short-Squeeze Stocks: PubMatic (PUBM)
Back in June, I called PUBM stock, a play in the programmatic (digital) advertising space, one of the best Reddit stocks to throw $100 into. The reason? The potential for this heavily shorted stock to go on the kind of epic squeeze Clover Health (NASDAQ:CLOV) went in at that time.
Unfortunately, this did not play out. After going from less than $30 per share to prices above $42.50 per share, it gave up its gains. Now at around $26 per share, it’s back to square one. Yet, as short-interest in this stock remains high (30% of float), could there be room for it to get squeezed one more time?
It depends. It may have high short-interest. But that’s only one part of the equation. For a squeeze to happen, it needs to gin up enthusiasm about retail investors on the long side. However, given retail trader interest in it has gone up and down several times this year (as seen on the r/WSB tracker), it may not be something you want to rule out.
A return to its all-time high (nearly $77 per share) may be a stretch goal, to say the least. But given even a partial rebound would mean a big percentage gain on your investment, PUBM stock remains very appealing as a short squeeze play.
Support.com stock has made a stunning recovery in recent weeks. Largely, due the price of Bitcoin (CCC:BTC-USD) making a comeback. Don’t let this company’s name confuse you: once its reverse merger deal closes, the company will become a crypto mining play named Greenidge Generation.
Not only that, it may end up being one of the better crypto mining plays out there. With none of the red flags that are holding down SOS Ltd. (NYSE:SOS), and with its shares priced in a way favorable to existing holders of SPRT stock, those on the long side may have a lesser chance of getting burned than what the shorts believe today.
Instead, the short side could be the ones experiencing further losses, as Support.com completes its crypto merger deal, and continues to rise to prices firmly in the double-digits. As InvestorPlace’s Christopher MacDonald wrote Aug. 14, the merger vote (scheduled for Sept. 10) is less than a month away.
With something that could send it soaring (and the shorts scrambling) in a matter of weeks, now may be the time to snap up SPRT stock. Add in the possibility of the BTC continuing to increase in value, and this stock may soon have two factors helping it move higher.
Short-Squeeze Stocks: Workhorse (WKHS)
Considering that it lost out in its highlypublicized bid to win the U.S. Postal Service vehicle contract, it makes sense why the shorts continue to bet so heavily against Workhorse stock. As of July 30, 33.5% of its outstanding float were still sold short.
Even after cratering following the bid loss, shares still trade at a valuation out of sync with its underlying assets. Yet there are many ways in this situation where the shorts could get squeezed, and those long WKHS stock could see massive gains. How?
First, if it prevails in its bid protest. The company is fighting the Postal Service decision to go with Oshkosh’s (NYSE:OSK) candidate. Admittedly, its chances of getting another shot at the contract via this route may be slim. Mostly, because the independent government agency was given authority by the U.S. Congress to operate outside typical federal procurement rules.
Fortunately, there are other paths for shares to pop on a squeeze. For example, if it makes more progress with its HorseFly drone technology. Or, if the continued push to go green results in a big-ticket order from the private sector. Given it has little in the form of assets or a profitable operating business to fall back on, this is still one of the riskier short-squeeze stocks. But it may not take much in the form of positive news to send it popping once again.
Late last month, WORX stock came on the radar of traders active online as a possible short-squeeze play. In fact, as seen from its performance so far in April, the heavily shorted microcap stock may have already experienced a brief squeeze. Between Aug. 2 and Aug. 6, shares in the healthcare company went from around $2.25 per share to as much as $5 per share.
Since then, the frenzy has eased. SCWorx has given up some of its squeeze gains, and now changes hands for around $2.85 per share. So has its short-squeeze angle fully played out, or does it have a shot of going parabolic once more? Talk about it on Reddit’s r/Shortsqueeze subreddit has cooled. This may mean the army of traders targeting short-squeeze stocks set their sights elsewhere.
Also, the hype surrounding its Covid-19 catalyst may have been overblown. SCWorx failed to generate meaningful revenue from the sale of testing kits and personal protective equipment (PPE). The company, its officers, and directors are also facing a lawsuit. Why? Due to allegations the company made back in April 2020 relating to a supplier deal were misleading and inaccurate.
On the other hand, given its high short interest, and its low liquidity despite a major market (Nasdaq exchange) listing? Renewed hype about it online may be enough to send it on another wild ride to higher prices.
Short-Squeeze Stocks: Exela Technologies (XELA)
It’s pulled back since its initial short squeeze last month. But does XELA stock still have a shot of getting squeezed “to the moon” a second time? It’s possible, but will likely hinge on the company’s turnaround efforts playing out with minimal hiccups.
The business process automation provider is trying to pivot from its legacy business model, which is low-margin and labor intensive, to one that’s more like that of a software-as-a-service provider. With new offerings like its e-signature platform DrySign, it may be on its way to achieving this goal.
Sure, the idea that this company will soon become more like Adobe (NASDAQ:ADBE) or Docusign (NASDAQ:DOCU) may be overstating things a bit. But as seen from its latest quarterly results, Exela has made progress improving its margins, and lowering its net debt. It now projects 2021 revenues of between $1.25 billion and $1.39 billion, and adjusted EBITDA between $200 million and $236.3 million (assuming it hits the top end of its internal estimates).
If it can meet or beat expectations? Thanks to its highly levered balance sheet, the underlying value of each share of XELA stock may have room to move substantially higher. As hype surrounding it continues to taper off, this may be one of the top short-squeeze stocks to buy today.
On the date of publication, Thomas Niel held a long position in Bitcoin. He 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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