- These three short-squeeze stocks look primed to benefit as they recover from recent negative sentiments.
- Marathon Digital (MARA): Depressed from relatively slow deployment of miners, but multi-fold growth in revenue is in the cards.
- Lucid Group (LCID): Has discounted lower production guidance for 2022, but has a positive outlook with international expansion and a focus on technology.
- Blink Charging (BLNK): Has strong revenue growth to sustain it as the company aggressively expands in international markets.
With inflation surging to 8.5%, it’s even more important to seek opportunities in equity markets. Interest on bank accounts or exposure to bonds will yield returns that are negative when adjusted for inflation. It’s also important to pursue active investments by deploying different strategies than just passive investing. One method that can be rewarding in the near-term is exposure to short-squeeze stocks.
As an overview, a short squeeze is when a stock that has high short interest trends upward. This triggers an accelerated closing of short positions by short sellers. As a result, the rally is magnified. Short-squeeze stocks came into the limelight in 2020 when Reddit traders targeted stocks with a high short interest.
It’s worth noting a short-squeeze rally can be in stocks of companies that have weak fundamentals. However, my focus is on picks with a robust business model, but negative sentiments in the near-term. Going long on these undervalued short-squeeze stocks is likely to translate into quick gains.
Marathon Digital (MARA)
In the last six months, Marathon Digital (NASDAQ:MARA) has underperformed. During this period, the stock has slipped by 73%.
This does not come as a surprise with Bitcoin (BTC-USD) trending lower and struggling at prices under $40,000. Additionally, the deployment of miners at Marathon Digital has been slower than expected. The markets have therefore been discounting relatively prudent growth targets.
However, with a short interest around 17%, MARA stock seems poised for a short-squeeze rally.
For March 2022, Marathon reported a hash rate of 3.9 exhash per second (EH/s). The company still expects capacity to increase to 13.3 EH/s by June 2022. Additionally, capacity growth is guided for 23.3 EH/s by the first quarter of 2023.
Even with relatively slow miner deployment, Marathon is positioned for sustained growth through 2023. Once Bitcoin trends higher, the short-squeeze rally can be significant.
It’s also worth mentioning that Marathon’s CEO indicated the company is open to being acquired at the right price. Any positive development on this front can send the stock soaring.
Overall, Marathon is likely to deliver annualized revenue in excess of $1 billion in 2023. Given the growth visibility, MARA stock seems undervalued and among the top short-squeeze stocks to consider.
Lucid Group (LCID)
The electric vehicle (EV) industry has tailwinds that are likely to last beyond the decade. However, the industry faces intermediate challenges in the form of chip shortages and raw material price inflation. The possibility of another economic slowdown is also a concern.
With a decent correction, there are several EV stocks worth considering for the short- and long-term. Lucid Group (NASDAQ:LCID) stock seems attractive for a short squeeze after a meaningful correction. With short interest around 19%, the reversal rally can be sharp.
Lucid disappointed the markets with low production guidance for its Lucid Air in 2022. The company expects production in the range of 12,000 to 14,000 vehicles. This factor is discounted in the stock price.
Recently, the company announced a new model, the Lucid Air Grand Touring Performance, which has an impressive 1,050 horsepower. It has also signed an agreement with multiple agencies for its first international plant in Saudi Arabia. With online reservations open for multiple countries, Lucid is targeting a big addressable market from the onset.
Lucid is scheduled to report first-quarter results in the first week of May. It might be a good time to consider exposure with the stock looking oversold. A 20% to 25% rally from current levels looks likely for LCID stock.
Blink Charging (BLNK)
There has been an extended period of sideways to lower movement for EV charging stocks. Blink Charging (NASDAQ:BLNK) is among the most appealing plays, with a company valuation of less than $1 billion. Further, BLNK stock has a short interest of 29%.
For Q4 2021, Blink reported revenue growth of 224% on a year-over-year basis to $7.9 million. It’s likely robust top-line growth will sustain in the next few years.
One reason to be bullish is the company’s international expansion. It already provides EV charging services in 18 countries. Recently, Blink announced expansion to another five countries. Currently, 36% of the company’s revenue come from international markets. This contribution is likely to increase and help sustain robust growth.
Blink Charging has also been aggressive on the inorganic growth front. EB Charging is the company’s latest acquisition and has added 1,150 EV chargers to Blink’s global footprint.
Specific to the United States, the Bipartisan Infrastructure Law includes a target investment of $7.5 billion for EV infrastructure growth. The company expects 500,000 EV charging stations to be deployed in the U.S. by 2030. This provides ample headroom for multi-year growth.
Given these tailwinds, BLNK stock is attractive after a meaningful correction. The electric vehicle segment seems oversold in the near-term. A potential reversal rally for the industry can trigger a short squeeze for the stock.
On the date of publication, Faisal Humayun did not hold (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.