If nothing else, the recent short squeeze of GameStop (NYSE:GME) stock put hedge fund managers on the defensive. One hedge fund, Melvin Capital, got crushed in the GameStop short squeeze, losing 53% of its value or about $4.5 billion of its assets. Other hedge funds have responded to the carnage by closing out their short positions on many stocks for fear of getting into a short squeeze themselves.
But the r/WallStreetBets crowd that fueled the GameStop rally on the popular Reddit forum shows no signs of stopping anytime soon. After GameStop, the platform’s mob targeted cannabis stocks, running companies such as Tilray (NASDAQ:TLRY) up 123% in three trading sessions to a peak of $67 a share before it crashed back down to earth and closed the week at $29 per share.
It has Wall Street asking which stocks will be next? In this article we look at seven stocks that currently have inflated short interest and that hedge funds fear could be the next to get squeezed by retail investors.
- Virgin Galactic (NYSE:SPCE)
- Dillard’s (NYSE:DDS)
- fuboTV (NYSE:FUBO)
- Tanger Factory Outlet Centers (NYSE:SKT)
- Beyond Meat (NASDAQ:BYND)
- Cineplex (TSE:CGX)
- Tootsie Roll Industries (NYSE:TR)
Stocks Hedge Funds Fear Could Be Next: Virgin Galactic (SPCE)
Virgin Galactic has a lot of things that appeal to the crowd on the WallStreetBets Reddit forum. The company is backed by charismatic billionaire named Sir Richard Branson; its focus on space tourism is unproven, risky and has attracted a fair number of skeptics; and, SPCE stock is massively shorted.
Currently, Virgin Galactic is the fourth-most heavily shorted stock on Wall Street, with a 72% short interest. This is exactly the type of stock that the Reddit crowd would love to create “to the moon” memes about.
Virgin Galactic stock has also been extremely volatile since the end of January, bouncing between $45 and $60 a share. The stock has been rising and falling 10% or more in single trading sessions in recent weeks. The share price recently dropped 10% after the company delayed a planned test flight of its SpaceShipTwo vehicle, a key milestone in the company’s plans to begin commercial space flights.
While institutional investors are betting against SPCE stock, it wouldn’t take much for retail investors to execute a short squeeze on this name.
Dillard’s (DDS)
After GameStop, the most-shorted stock right now is antiquated department store chain Dillard’s. Founded in 1938, the Little Rock, Arkansas-based company is viewed as a dinosaur in the age of Amazon and online shopping. Plus, the company’s finances are a mess.
In the past year, Dillard’s revenue declined by $1.5 billion or about 25%, while also losing $200 million in net income for a total net loss of $71 million. For these reasons, DDS stock currently has a 95% short interest.
However, despite the seemingly dire situation, DDS stock has been moving higher this year, up 38% since the beginning of January to just under $80 a share. This sharp move higher, which makes no sense given the company’s poor fundamentals, has many people on Wall Street speculating that Dillard’s stock may already be in the grips of a short squeeze.
Consider that the median price target on the stock is $57 a share, representing a nearly 30% decline from its current level, and it’s easy to see that something unusual is going on. Yet Dillard’s stock could run higher if retail investors squeeze harder.
fuboTV (FUBO)
With its focus on streaming live sports, fuboTV is a curious streaming service. Basically, fuboTV streams the sports people can watch on basic cable, including professional football, baseball, basketball, hockey and American soccer.
This partially accounts why so many professional traders are betting against fuboTV. Plus, FUBO stock has had a massive run up since its initial public offering (IPO) last October, rising 243% to more than $45 a share. The professional hedge fund managers rightly think this stock is due for a pullback.
Currently, FUBO stock has a 72% short interest, making it one of the most heavily shorted stocks. However, FuboTV has, so far, managed to prove the short-sellers wrong – something the WallStreetBets mob loves. The company’s stock recently jumped even higher on news that one analyst had increased his price target on the stock by 25%. The median price target on the stock is $48 a share.
Should the Reddit crowd get their hands on this stock, which is still trading under $50, there’s no telling how high it might go.
Tanger Factory Outlet Centers (SKT)
Has anyone missed shopping at outlet malls during the pandemic? The so-called “smart money” surely hasn’t given that SKT stock has a 52% short interest. Institutional investors don’t expect people to return to outlet malls anytime soon — not with the convenience of having everything we want and need delivered to our front doors. And that is bad news for Greensboro, North Carolina-based Tanger Factory Outlet Centers that operates 32 outlet center malls in the U.S. and Canada.
Tanger shares have been struggling over the past year and is currently below its pre-pandemic level at $14.15 a share. SKT stock did get a big and unusual boost at the same time the GameStop short squeeze was taking place. At the end of January, Tanger’s stock suddenly jumped 50% to nearly $18 a share. The sudden move higher was partly attributed to the company reinstating its dividend. But a few days later, the stock price was back down under $13. The volatile move led many on Wall Street add Tanger’s stock to their short-squeeze watch list.
Beyond Meat (BYND)
Beyond Meat has been a volatile stock since its initial public offering in 2019. BYND stock initially ran up 255% before falling 75% and then rebounding 236%. It’s been a roller coaster. Part of the problem has been the company’s inability to expand its plant-based meat substitute beyond a core customer base of vegetarians and vegans. Several arrangements that Beyond Meat entered into with the likes of McDonald’s (NYSE:MCD) and Taco Bell have not taken off as hoped. The company is now exploring a possible deal with PepsiCo (NASDAQ:PEP) to develop plant-based snacks, but many analysts are skeptical that it will bear much fruit.
These set backs help to explain why there is a 43% short interest on BYND stock. Hedge funds and institutional investors are betting that Beyond Meat will not be able to significantly broaden its appeal. Just the kind of challenge the WallStreetBets crowd loves to accept.
Beyond Meat stock had a nice 43% jump at the end of January, reaching $192 a share. But it has since flat lined at around $175. However, it wouldn’t take much to send this stock back up to its all-time high of $234.90 a share.
Cineplex (CGX.TO)
AMC Entertainment (NYSE:AMC) isn’t the only game in town when it comes to struggling movie theatre chains. There’s also Canada’s Cineplex, a Toronto-based company that operates approximately 165 movie theatres across that vast, frozen nation. And, just like AMC, Cineplex has been on the ropes ever since the pandemic forced it to almost entirely shutdown operations.
The company reported a loss of $230.4 million in the fourth quarter, or $3.64 per diluted share. That compares to a profit of $3.5 million or 6 cents per diluted share in the fourth quarter of 2019.
The situation has gotten so bad that Cineplex recently sold its Toronto head office for $57 million and the company’s CEO has been promoting the idea of turning the abandoned movie theatres into Covid-19 vaccination sites.
Truth be told, Cineplex was struggling before Covid-19. That’s why the company agreed to be bought out by Britain’s Cineworld (LON:CINE.L) in late 2019. But Cineworld backed out of that 2.8 billion CAD ($2.2 billion) agreement when the pandemic took hold. While not one of the most shorted stocks in the U.S., the Reddit crowd might still find CGX stock an attractive proposition at 11.80 CAD a share.
Tootsie Roll Industries (TR)
Believe it or not, there is a confectionery company dedicated to making Tootsie Rolls, those taffy life candies most of us find at the bottom of a bag of Halloween candy. Based in Chicago and in operation since 1896, it’s fair to say that Tootsie Roll’s best days are long behind it now.
The company’s heyday was in the 1930s when it invented the Tootsie Pop sucker that proved to be a big hit during the Depression because of its low price. Today, Tootsie Roll Industries is largely viewed as a relic from another time, which is why TR stock has a 45% short interest.
Tootsie Roll Industries is the type of random, outdated stock that the WallStreetBets crowd seems to enjoy running up to ridiculous prices as hedge fund managers scramble to cover their short positions and media pundits spout terms like “irrational exuberance” and “pump and dump.” Yet given its current short position, it would not be out of the realm of possibility for retail traders to target TR stock for a short squeeze.
Some people think the stock is already being squeezed given its 43% jump at the end of January. Before that, the share price had been stuck right around $30 a share.
On the date of publication, Joel Baglole held a long position in MCD.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
