- Earnings reports next week in three of Wall Street’s most-shorted stocks may assist with bottoming efforts already underway.
- Upstart Holdings (UPST): is a baby-with-the-bathwater earnings opportunity.
- Beyond Meat (BYND): shares have put together a major bottom in front of its Q1 report.
- Lemonade (LMND): has been bearishly squeezed, but a recent chart breakout looks promising.
Bears and fearful bulls are successfully countering potential bargain-hunting efforts once again this week in the broader averages. And a bottom may not be in the cards just yet. But in a market made up of individual stocks sometimes left to their own devices, three of Wall Street’s most-shorted stocks with nearby earnings reports are setting up as buys.
It almost didn’t happen. But Wednesday’s well-received rate hike has turned into an abrupt and bearish Mulligan to finish the week and sinking bellwethers like the S&P 500 to new year-to-date (YTD) lows. And to be sure, many of the market’s most-shorted shorts have followed suit.
More importantly, a fifth straight week of lower market prices accompanied by overly-fearful conditions demands investors consider selectively buying into the correction. And today, the following three most-shorted stocks are offering actionable pattern bottoms on their price charts with earnings catalysts to potentially help drive new bullish cycles.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) is the first of our most-shorted stocks to buy. Shares of this $7 billion mid-cap maintain short interest of 28%.
In front of Monday night’s first-quarter release, the cloud-based artificial intelligence (AI) loan referral upstart is forecasted to post earnings of 53 cents and an improvement of 140% over last year’s result of 22 cents. Likewise, solid sales growth of roughly 147% on sales of $300 million is forecast according to CNN.
As discussed, a couple weeks ago, UPST’s punishing bear market has been a byproduct of the share’s prior success as a hyped momentum play in 2021, as well as a broader de-risking out of growth stocks. I wasn’t bullish then. But today’s extreme market conditions and price action dictate otherwise.
Technically, UPST stock has confirmed a bullish double-bottom backed by a positive stochastics and Bollinger band support. And today it’s time to view multiple trendline and Fibonacci failures as an oversold opportunity to buy, rather than fearfully avoided.
With UPST’s solid fundamentals, I’d suggest going with a fully-hedged collar or a modified variation on this most-shorted stock and actively manage a position as a longer-term investment.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) is the next of our most-shorted stocks to purchase. The meat alternative play is set to report May 11 after the closing bell and sports short interest of 38%.
To be critically fair, Beyond Meat is a dicier-looking proposition. It’s bottomline is mired in red ink. And competition is seemingly growing like weeds in the faux meats market. That’s not all either.
Despite this most-shorted stock’s early industry leadership in this growing food space, huge brand recognition and numerous restaurant partnerships, losses over the past year have also come in wider-than-forecast. Also, this quarter’s estimated loss of $1.03 in BYND stock is expected to be more than 150% larger than the 42 cent loss incurred during last year’s Q1.
That all said, this most-shorted stock does make for a terrific contrarian bet and one in which better-than-feared results and a glimmer of positive guidance could go a long ways towards getting the bears off BYND’s back.
Technically, this most-shorted stock shows a potential lifetime monthly triple bottom that’s been trying to form a third pivot since March. And stochastics looks promising for a meaningful low to emerge.
Prudently, without price confirmation in front of the event, I’d advise putting the smaller $2.35 billion mid-cap on the watchlist for buying after earnings and only make a purchase if the report is able deliver an upside surprise reaffirmed by the price chart.
Lemonade (NYSE:LMND) is the last of our most-shorted stocks buy. The $1.32 billion artificial intelligence-backed and millennial pleasing, app-friendly insurance upstart is set to report after Monday’s close.
For a brief time in late 2020, Lemonade was the toast of the town among bulls as LMND stock surged more than 270% in less than three months. But since peaking at $188.30 last January, this most-shorted stock’s bearish short interest of 37% has enjoyed squeezing even larger profits out of Lemonade shares.
Today, shares of LMND have not only caved to new lows in 2022, but the stock is also trading roughly 40% beneath its initial public offering (IPO) price of $29.
Smartly, cheaper doesn’t necessarily mean value is on the table. However and in this instance, I do like what I’m seeing on this most-shorted stock’s monthly chart.
Shares of LMND are trading in an inside candlestick formation for a second month after March’s bullish doji-like hammer all-time-low. Further, the pattern has broken lifetime downtrend resistance and backed by a bullish stochastics setup.
Much like BYND stock, there are real competitive concerns and lots of red ink that isn’t going to make a dye-in-the-wool value investor happy. But for more risk-tolerant bulls, an out-of-the-money May or June bull call spread can vastly reduce downside risk and provide upside leverage should bulls do the squeezing for the first time in a long while.
On the date of publication, Chris Tyler 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.