7 Short-Squeeze Stocks to Sell Before Traders Cash Out
Although contrarianism captured headlines through the first two years of the coronavirus pandemic, it’s now time for investors to consider the topic of short-squeeze stocks to sell before traders cash out. Fundamentally, when bears target weak companies, it’s usually for glaring vulnerabilities. Bidding such equities up doesn’t usually represent a high probability of success.
In addition, short-squeeze stocks to sell align with both micro and macro dynamics. First, the micro. As mentioned above, when bears attack, there’s a reason for it. Most of the shorted securities feature at least one if not several major weaknesses. Whether bankruptcies, cash burn, or lack of a defined profitability timeline, certain enterprises don’t command credibility.
Now, that’s always going to be the case in any market environment. But in this ecosystem, Wall Street clearly now favors established track records. For instance, boring names like insurance firms have risen while technology-centric market ideas floundered. Therefore, enterprises heavily leaning on potential growth or earnings narratives may attract attention as short-squeeze stocks to sell.
Below are some previously popular contrarian ideas that traders should consider cashing out on.
A cosmetics giant, Revlon (NYSE:REV) made a huge name for itself in prior decades for its pizzazz-driven products. Steadily, though, its business failed to resonate with younger demographics. As a result, Revlon filed for bankruptcy. Through the Oct. 18 session, REV stock dropped 65%. However, it’s known for generating the occasional spikes higher.
Moving forward, it’s probably best to consider REV as one of the short-squeeze stocks to sell. While REV ranks among Fintel’s Short Squeeze Leaderboard with a short float of 25%, its short interest ratio (days to cover) is only 0.53. In other words, bearish traders need only half a day based on average volume trends to cover their short positions.
Another concerning factor focuses on the financials. Obviously, the company features a poor Altman Z-Score, which measures bankruptcy probability risks. In addition, the poor results stemming from the second quarter of 2022 (particularly revenue and net income erosion) suggest the future is not so bright for Revlon.
Virgin Orbit (VORB)
One of a growing number of space economy companies, Virgin Orbit (NASDAQ:VORB) specializes in small-satellite launching services. Fundamentally, Virgin Orbit benefits from robust projections of the underling industry. For instance, several institutions project that the space economy will be worth $1 trillion by 2040.
Given the credibility concerns of players in the space industry, it’s no surprise that VORB ranks among the shorted securities. Currently, VORB features a short float of 18% and days to cover of 2.41. While the former stat signifies rather intense bearishness, the latter stat remains limited in its contrarian implications. In other words, bears can still cover their positions within a reasonable time frame.
However, the biggest concern for VORB (and the reason why it’s on this list of short-squeeze stocks to sell) is that it runs counter to economic realities. Frankly, investors seek stable, reliable businesses during this market deflationary period. Looking at Virgin Orbit’s shoddy financials, it’s neither stable nor reliable.
Biotechnology firm, Ibio (NYSEAMERICAN:IBIO) really came to life during the pandemic. Marketing its FastPharming innovation involving a proprietary plant-based recombinant protein manufacturing platform, many held out hopes that Ibio could engineer a groundbreaking Covid-19 vaccine. Unfortunately, the company could not compete with the big boys of pharma.
At the time of writing, IBIO ranks among the most shorted securities on Fintel’s Short Squeeze Leaderboard. It features a staggering short float of 120% and days to cover of 36.5. Therefore, it’s not impossible given the massive bearish bets that contrarians might spark a short squeeze. Certainly, I’m in no mood to test my luck on either side of this trade right now.
However, should IBIO jump higher, you’ll really want to consider adding this to your list of short-squeeze stocks to sell. As with many speculative biotechs, Ibio lacks fiscal stability. Moreover, its longer-term positive sales trends stem from the Covid days. Those days are long gone, though, so it’s probably time to abandon ship.
Opal Fuels (OPAL)
Admittedly, I agonized over whether to include Opal Fuels (NASDAQ:OPAL) on this list of short-squeeze stocks to sell. Fundamentally, I see both sides of the picture. On the positive realm, Opal Fuels brings massive relevancies to the table with its renewable natural gas (RNG) solutions. Per the U.S. Department of Energy, RNG is a “pipeline-quality gas that is fully interchangeable with conventional natural gas and thus can be used in natural gas vehicles.”
Sounds great, right? That’s why I struggled with the concept of OPAL being one of the short-squeeze stocks to sell. However, on the flip side, this relevant business profile so far fails to translate into fiscal substance. Per Gurufocus.com, Opal ranks poorly regarding profitability metrics. As per the same resource, the company apparently generated zero revenue in Q2 2022.
To be fair, investors who feel differently about OPAL should note that the underlying firm features no debt. That’s something to think about because it gives the company flexibility during this difficult time. Nevertheless, the market favors established, tangible track records, not aspirational offerings.
Another company that’s arguably prone to flip-flopping based on its business profile, Weber (NYSE:WEBR) presents surprising relevancies. As a manufacturer of outdoor grills, Weber caters to the socialization boon that reduced Covid mitigation protocols engendered. Therefore, I can see why some intrepid folks decided to bid up the embattled company.
At the moment, WEBR features a short float of 47.2% and days to cover of 12.5. With both stats pinging in double-digit territory, Weber clearly demonstrates significant bearish attention. The dilemma comes down to whether or not such pessimism commands justification.
Broadly speaking, WEBR contrarians need to be careful. According to Gurufocus.com, Weber owns middling profitability metrics and poor financial stability. In Q2 2022, the company presented the worst of double deals: declining revenue and net income that dipped into negative territory on a year-over-year basis.
As with other short-squeeze stocks to sell, Wall Street presently favors established, dependable businesses. Unfortunately, that doesn’t describe Weber right now.
Easily ranking among the most heavily shorted securities, SurgePays (NASDAQ:SURG) presents a tricky narrative. Fundamentally, the company enjoys significant relevancy. Per its website, SurgePays is a “one-stop shop for all prepaid products and the top 100 selling products for retail stores, bodegas, and tiendas.” As evidence of its popularity, SURG gained a staggering 139% year-to-date.
However, such a robust performance also implies it could soon be one of the short-squeeze stocks to sell. Let’s be real. For now, SURG’s short float of 51.7% and days to cover of 10.3 present a tempting profile for contrarians. At the same time, SURG doesn’t bring much confidence to the mix in terms of financial stability.
Per Gurufocus.com, SURG represents a significantly overvalued investment. It features poor profitability metrics and less-than-desirable stability in the balance sheet. Another negative spotlight to focus on is the negative free cash flow trend. During a deflationary market cycle, such red ink may present huge liabilities.
SkyWater Technology (SKYT)
Finally, we’ll end this list of short-squeeze stocks to sell with Skywater Technologies (NASDAQ:SKYT). This is another market idea that really could go either way. For instance, fundamentally, Skywater brings a critical narrative to the table. As a semiconductor firm specializing in a U.S.-sourced and owned fabrication foundry, Skywater commands enormous national security implications.
Yes, I’m talking about the CHIPS and Science Act, which seeks to boost America’s semiconductor-based infrastructures. As the U.S. competes with a growing Chinese tech sector, Skywater may present an important cog to the economy.
Nevertheless, given the present market and economic conditions, SKYT also qualifies as one of the short-squeeze stocks to sell. Its financials are simply messy, particularly its almost-ghoulish profitability metrics. As well, Skywater features poor stability in the balance sheet. In other words, SKYT might be too aspirational for most investors’ liking.
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.