One of the places to find the best stocks to short are by viewing the Short Interest tables of major financial publications like MarketWatch and the Wall Street Journal. It’s there you find the heavily shorted stocks in the markets.
As Investopedia states, “Short interest is the number of shares that have been sold short and remain outstanding.” When the short interest rises for an individual stock, it could indicate that investors are souring on that stock. The inverse applies when the short interest falls.
Investors use the short interest to determine how many days it would take for short sellers to cover their positions and return the stock to their owners. That’s known as the Short Interest ratio.
The top three stocks sold short as of April 28, based on the shares sold short divided by the float, were Carvana (NYSE:CVNA), Allogene Therapeutics (NASDAQ:ALLO), and EHang Holdings (NASDAQ:EH).
Of these three, I am only familiar with Carvana. It’s down more than 71% over the past year but has rebounded nicely in 2023. As one of the biggest sellers of used cars, the odds of it returning to profitability are high. That’s not one I would consider.
Here are the three stocks to sell short that I would consider.
Novavax (NASDAQ:NVAX) had a short interest of 33.6 million shares as of April 28, representing 39.93% of its float.
Throughout the pandemic, Novavax appeared to be the bridesmaid and never the bride. The good news was always just around the corner. At less than $8, down from its February 2021 high of $331.68, not a lot has gone its way. Some of it was bad luck and timing. Some of it was terrible execution.
Things have gotten so bad that its shares soared when it announced it was cutting 25% of its workforce earlier in May. At the same time, it reported some good news about its various vaccines, including Nuvaxovid, the company’s Covid-19 vaccine.
As part of its Q1 2023 press release, Novavax said its 2023 revenues would be $1.5 billion at the midpoint of its guidance, with product sales accounting for 77% and grants the remaining 23%.
It didn’t mention the bottom line in its guidance. However, it lost nearly $300 million in the quarter on just $81 million in revenue, down from $704 million a year earlier.
Hope’s a great thing, just not when it comes to investing. As Bud Fox (Charlie Sheen’s character in Wall Street) would say, “It’s a dog with fleas.”
Wayfair (NYSE:W) had a short interest of 22.8 million shares at the end of April, representing 29.41% of its float.
Wayfair, like Novavax, rode the pandemic to big profits. In 2020, it generated an operating profit of $360 million from $14.15 billion in revenue. Everybody was buying furniture while working from home.
Investors pushed its share price to $369 by the beginning of 2021. They were convinced that the company had finally figured out how to make money from selling furniture online.
Not so fast. In the next 24 months, its annual revenues dropped by nearly $2 billion, with $1.48 billion in operating losses. Hmm, I guess it didn’t figure things out.
Now, thanks to Bank of America analyst Curtis Nagle’s comments at the end of April — he believes the Bed Bath & Beyond bankruptcy will increase Wayfair’s sales by 2% annually — its share price has increased. However, it’s still one-tenth what it was in January 2021.
It reported Q1 2023 results in early May. Year-over-year, revenues were 7.3% lower, with a $347 million operating loss. So, the 2% increase in sales will only add to the losses.
I recommended investors sell Wayfair stock in 2017 when it traded around the same price as it does today. Unfortunately, it’s still a big sell and a very good short.
EVgo (NASDAQ:EVGO) had a short interest of 22.4 million shares at the end of April, representing 31.32% of its float.
I haven’t paid much attention to EVgo in 2023, so I was surprised to learn that the company with the U.S. DC fast charging network wasn’t doing all that great. But then, it announced on May 17 that it was raising $125 million in cash through the sale of its stock. Its shares fell 19% on the news.
Barron’s reported that EVgo’s revenues would increase by 150% in 2023 to $130 million. But, unfortunately, it will use $240 million to expand its network. That means more cash burn and the need for more capital raises. So, at some point, if it’s not careful, the “going concern” press release could come down the pike.
Despite the cash flow issues, 46% of analysts covering its stock still rate it a Buy. While that’s down from 60%, it’s a fantastic show of good faith by analysts. I wouldn’t be surprised if EVgo makes them look silly in the second half of 2023 and into 2024.
I can see the allure. On many occasions in 2021, I sang the praises of ChargePoint Holdings (NASDAQ:CHPT) as it closed in on $30. It’s down 72% since.
Can you see the egg on my face? The high short interest for EVGO makes complete sense.
On the date of publication, Will Ashworth 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.
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