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10 Heavily Shorted Stocks Set For GameStop-Like 'Squeeze' Rallies

MATT KRANTZ08:00 AM ET 01/26/2021

https://www.investors.com/etfs-and-funds/sectors/sp500-heavily-shorted-stocks-primed-for-epic-squeezes-analysts-say-gamestop/?src=A00220

Betting on stocks that others hate, including some in the S&P 500, is paying off big. And that leads some to wonder where the next epic "short squeezes" might be.

Ten heavily "shorted" stocks in the S&P 1500 index that includes the S&P 500, like real estate firm Geo Group (GEO), health care Ligand Pharmaceuticals (LGND) and materials firm International Flavors & Fragrances (IFF), still have more than 9% upside until hitting analysts' 12-month price targets, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.

Talk about stocks people hate. At least 17% of their shares outstanding are controlled by short sellers. Short sellers, or shorts, are investors who are betting a stock is due to fall. These heavily shorted stocks carry more than four times the 4% short interest of the average company in the S&P 1500.

The rally in hated stocks is just a reminder of this ongoing powerful stock rally. Few stocks are left behind, including smaller ones.

"The tremendous performance by small cap stocks over the past 10 months suggests that a lasting economic expansion has begun in earnest and seems to validate the historical cycle pattern of small caps beating large caps early in cycles," said Jeff Buchbinder, equity strategist at LPL Financial.

Take consumer discretionary GameStop (GME): the most hated stock on the S&P 1500. Short interest on the video-game retailer is 102%. That means the number of shares controlled by short sellers is higher than its roughly 70 million shares outstanding.

Short sellers borrow the stock from investors, sell them, and promise to return them to the original owners at a (hopefully lower price) later.

But here's where the magic happens for those betting against the shorts. If the company has good news, or if other investors simply push the stock price up, it can put shares into hyperdrive higher. Shorts lose money if the stock rises. The only way to stop the pain, ironically, is to buy the shares. This powerful rally from forced buyers, called a "short squeeze," can be explosive.

Just look at GameStop. Shares jumped 12.02, or 18.6%, to 76.77 on Monday following the latest short squeeze. But it's not just a one-day affair. The stock is up more than 300% this year and nearly 1,700% in 12 months.

And it's not just GameStop, either. Shares of all 10 of the most shorted S&P 1500 stocks are up this year. Not by a little either. They're up, on average, by 73% — just this year. And these heavily shorted stocks more than tripled the past 12 months.

S&P 1500 companies with high short levels of more than 17% are up 34% this year. Meanwhile, the S&P 500 is up just 2.6% this year.

Most Heavily Shorted Stocks On The S&P 1500
They're all up big in 2021 so far

Company Ticker Short Int./Shares Outstanding Stock YTD % Ch. Sector
GameStop (GME) 102% 307.6% Consumer Discretionary
Bed Bath & Beyond (BBBY) 64% 72.7% Consumer Discretionary
Ligand Pharmaceuticals (LGND) 62% 56.9% Health Care
Macerich (MAC) 54% 61.6% Real Estate
Tanger Factory Outlet Centers (SKT) 48% 37.6% Real Estate
AMC Networks (AMCX) 39% 52.1% Communication Services
iRobot (IRBT) 36% 44.2% Consumer Discretionary
Children's Place (PLCE) 36% 42.8% Consumer Discretionary
B&G Foods (BGS) 36% 22.7% Consumer Staples
Macy's (M) 35% 26.9% Consumer Discretionary
Sources: IBD, S&P Global Market Intelligence

Still Room For A Short Squeeze?
But you might think, what good are these shorted stocks to you now? They've already run up, right?

And yet, analysts still think 10 of the most highly shorted S&P 1500 stocks hold promise.

For instance, analysts think GEO Group should be an 18-a-share stock in 12 months. If they're right, that's more than 120% upside. Keep in mind, though, this Florida-based real estate company is one of the few heavily shorted stocks that's down this year. Short interest is at 18.5% of shares outstanding. And the IBD Composite Rating is low, at 3, showing its stock and fundamentals underperform 97% of all other stocks.

Among the S&P 500, hopes are highest for International Flavors & Fragrances. The company's stock is up 6.9% this year. Analysts, though, think it can rise another 18.5% in 12 months. A hefty 19% of its shares outstanding are controlled by short sellers.

Not all the heavily shorted stocks are laggards, though.

Ligand Pharmaceuticals is up nearly 17% this year despite 61% short interest. No wonder its stock and fundamentals outclass 97% of all others, shown by its Composite Rating. The blood and skin treatment maker's shares are seen hitting nearly 182 in 12 months. If analysts are right, that's more than 18% upside.

Now's that's something to love in a stock many others hate.

Heavily Shorted Stocks With Most Upside Left
All in S&P 1500, analysts see rising more than 9% in 12 months

Company Ticker Short Int./Shares Outstanding YTD % Ch. Upside To Target Sector Composite Rating

GEO Group (GEO) 18.5% -9.3% 123.9% Real Estate 3
Coherus BioSciences (CHRS) 21.5% 12.5% 52.9% Health Care 29
Zynex (ZYXI) 17.5% 38.4% 46.5% Health Care 61
Ebix (EBIX) 24.2% 21.6% 22.4% Information Technology 88
International Flavors & Fragrances (IFF) 18.6% 6.9% 18.5% Materials 12
Ligand Pharmaceuticals (LGND) 61.6% 56.9% 16.4% Health Care 97
Sabre (SABR) 18.1% -2.5% 9.8% Information Technology 34
Hibbett Sports (HIBB) 20.2% 18.5% 9.6% Consumer Discretionary 97
LivePerson (LPSN) 17.7% 5.6% 9.4% Information Technology 64
Green Plains (GPRE) 17.3% 48.1% 9.2% Energy 85
Sources: IBD, S&P Global Market Intelligence