OPEN - 7 Stock Picks for Brazen Short Sellers Seeking Overnight Riches
2024-07-09 07:00:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Short selling is like all investing in that it is part art, part science. Investors who pick short sale stocks use fundamental and technical indicators to inform their belief that a given share will decline in price. They also leverage instinct and a feeling that they’re correct. It’s exactly the same as buy and hold investing in that regard.
However, they are also engaging in a unique and high risk endeavor that is also known to create overnight riches. That makes short selling distinct from buy-and-hold investing. Short selling involves borrowing shares from a broker, immediately selling those shares to open, receiving payment for that sale, hopefully buying shares at a lower price, and then returning those shares to the broker which have been purchased at a lower price. Short sellers pocket the difference, minus fees and interest, and in doing so can secure quick returns.
Let’s look at several stocks that have high short interest and are expected to fall, making them good short selling stock picks.
Beyond Meat (BYND)
Beyond Meat (NASDAQ: BYND ) continues to head in the wrong direction which has caused traders to seize upon the stock. Currently, short interest sits near 40% . That’s a strong indication that bearish sentiment surrounds Beyond Meat and that it will continue to fall further, creating short selling opportunities in the process.
Let’s start with a few metrics and forecasts surrounding Beyond Meat because they suggest there is a lot of opportunity at present. The current share price of Beyond Meat is $6.80. However, the consensus price sits at $5.64. The point I want to note here is that many highly sold-short stocks trade well below their consensus price and may have already bottomed. The fact that Beyond Meat still has plenty of room to fall is a positive for short sellers.
Combine that thinking with the most recent quarterly earnings report from the company and you can see why it should fall further. Arguably the most important factor is simply that demand for Beyond Meat is weak. That is reflected in sales that fell by 18% in the first quarter. The company is simply not being received as it had hoped. Beyond that, the company continues to incur large net losses.
Upstart Holdings (UPST)
Let me start by stating that I am not a fan of Upstart Holdings (NASDAQ: UPST ) and do not recommend investing in its stock for a number of reasons. I don’t believe AI-based lending is the savior it has been purported to be by any means. In short, I am extremely biased against the company, especially following the debacles surrounding predictive algorithms in the home buying space.
Companies like Redfin (NASDAQ: RDFN ) and Opendoor Technologies (NASDAQ: OPEN ) showed investors how woefully inadequate algorithms can be at predicting macroeconomic trends in the housing market. So, I’m highly suspicious that Upstart Holdings has somehow improved lending by leveraging AI so heavily. In fact, Upstart Holdings is likely to falter by removing the human element from the lending process.
Upstart Holdings is close to its consensus price but has a lot of room to fall. Peering into its Q1 financial results lends plenty of support to that notion. The company isn’t expected to grow sequentially between the first and second quarter . However, it is expected to continue to incur massive losses. It remains a strong short-selling stock pick.
Virgin Galactic (SPCE)
Virgin Galactic (NYSE: SPCE ) is a stock that has fallen precipitously and is likely to fall further. Many investors already know the story surrounding Virgin Galactic: The company was extraordinarily popular a few years ago based on the excitement surrounding commercial spaceflight. Share prices peaked above $55 back in 2021. Today, they’ve fallen below $8 as the company continues to disappoint.
Virgin Galactic has paused space flights and is slated to lay off workers. The company is also expected to see a revenue contraction through the remainder of this year and all of 2025 . That fact alone should continue to disappoint investors and create downward share price forces. I don’t think many investors are interested in playing the medium to long game with Virgin Galactic at this point. Yes, the company is expected to expand dramatically in 2026 but investors have been burned by the stock too much to hold on until then.
The recent reverse stock split enacted by Virgin Galactic is only going to further serve bearish narratives around its shares. I think Virgin Galactic is going to fall further and create short selling opportunities in the process.
Chargepoint Holdings (CHPT)
It doesn’t require a deep dive into the financials to understand why Chargepoint Holdings (NYSE: CHPT ) stock is doing so poorly.
Investors can simply look at the first few lines of the most recent earnings report to understand the trouble plaguing the company. Revenues fell by 18% in the first quarter and gross margins narrowed. What that suggests to me is a twofold problem: Chargepoint Holdings is clearly suffering from weakening demand reflected by lower revenues. It’s also facing stiffening competition which is reflected as lower gross margins indicative of weakening pricing power.
Any company that sees weakening demand and is forced to accept lower prices is headed in the wrong direction. Yet, that’s where Chargepoint Holdings is as newer EV infrastructure plays continue to arise. Chargepoint Holdings had a massive advantage early on in the development of EV infrastructure but it has dissipated and the share price has fallen as a result.
The EV sector is going to take some time to turn around. Meanwhile, CHPT shares continue to move downward.
Lucid (LCID)
Lucid (NASDAQ: LCID ) stock is only going to continue to disappoint investors in 2024. In other words, it’s a prime target for short sellers seeking overnight riches.
The reason to believe that Lucid will continue to falter is deliveries. The company delivered 8,428 vehicles in 2023 leading to $2.83 billion in net losses. In 2024 Lucid is expected to deliver 9,000 vehicles . Investors are not likely to favor Lucid stock given the simple fact that it isn’t going to progress much, if at all, this year. That’s exactly what we’re seeing so far as Lucid shares have fallen by more than 29% year to date.
Shares currently trade very near their low target price. That may suggest that most of the downward momentum in Lucid has already passed. However, at $2.95 per share declines of a few cents create large percentage drops that short sellers can capitalize on.
Big Lots (BIG)
Currently, 29% of Big Lots (NYSE: BIG ) stock is sold short. That means 29% of all shares are borrowed on margin in anticipation of falling prices moving forward. It’s a level that indicates strong bearishness which is a warranted given the fact that BIG stock has fallen by nearly 78% in 2024.
The company released earnings in early June that only further suggest the company is in trouble. Those results were worse than anticipated with bigger than expected losses . The discount retailer is far from profitable and is not making any progress toward profitability. It’s a simple pattern to follow that will ultimately lead to its failure.
Shares currently trade for $1.70 and have a low target price of $1. There is clearly room for those shares to fall further and at such a low price declines of a few cents create real opportunities for short sellers. Expect Big Lots to continue to decline and short sellers to take advantage.
Medical Properties Trust (MPW)
Medical Properties Trust (NYSE: MPW ) stock represents a highly risky healthcare facilities Real Estate Investment Trust ( REIT ). It’s a company that has a lot of red flags including short interest above 30%.
The Allure of investing in MPW can be found in its high yield dividend. That dividend pays nearly 15% at the moment. That’s a level of yield that generally indicates high risk which fairly describes Medical Properties Trust.
The most obvious issue for the company is that it is highly indebted . It continues to scramble to sell properties and create liquidity in the process to service not only that debt but also the dividend. While the company was more than capable of paying the 15 cent dividend this quarter given it had a net funds from operations (NFFO) of 24 cents, cracks are emerging.
The company lost $693 million in the first quarter. It is simply a poorly run business and although it continues to pay dividends sooner or later it will lose the ability to do so because of those net losses and high debt.
On the date of publication, Alex Sirois 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 .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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