Selling stocks short is a practice that’s once again facing criticism, and a potential ban, following the collapse of multiple regional banks earlier in the year. Short selling is a risky practice where investors borrow shares, sell said shares (expecting their price to fall), then later buying these shares at a discount and pocket the difference.
Notably, there is a precedent for short selling bans. A temporary halt on short selling was initiated during the 2008 collapse. There is no immediate suggestion that another ban will be implemented. However, any future unforeseen trouble that culminates in a drastic downturn could trigger a ban. The Fed recently paused rate hikes, arguably to lessen the risk of another banking shock.
In short, significant market shocks and short selling bans aren’t mere fantasy. That makes many shares on this list of stocks with high short-interest stocks to sell right now.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) is clearly struggling. No single metric reflects that truth more than the fact that revenues fell by 15.7% to $92.2 million in the first quarter. This suggests limited interest in the plant-based food company, and raises doubts about Beyond Meat’s ability to meet expectations in coming quarters.
Notably, BYND stock has traded roughly flat for 2023. That’s not a positive sign, even when considering the company’s recent numbers. A combination of bullish stock market momentum and a Fed rate hike pause benefited most growth stocks, meaning Beyond Meat has underperformed its peers of late.
That said, some of this underperformance may be expected. Many investors expect BYND stock to fall, considering that more than 46% of Beyond Meat’s float is shorted. That’s among the highest of any stock in the market right now, and reflects the strong conviction among many market participants that this stock is headed lower. However, a ban on short selling would preclude investors from capitalizing on such events.
Retail sales fell by 35%, which highly suggests that consumers simply have lost interest in Beyond Meat products. It’s only a useful investment for short selling, meaning those involved in this game may want to exit their positions before it’s too late.
Big Lots (BIG)
Big Lots (NYSE:BIG) isn’t far behind Beyond Meat when it comes to short interest. At 41%, it’s fair to state that few investors believe in the discount retailer and its chances to move higher price-wise.
Big Lots’ sales fell by double digits across every major category in the first quarter, with the exception of food and electronics which still fell by 5% and 7%, respectively. Overall, revenues fell by 18%.
More importantly, the company’s operating losses ballooned from $13.54 million to $117.98 million and total net losses exceeded $206 million. Put succinctly, Big Lots is one of the worst-run discount retailers and offers little in the way of hope. One would think that given inflationary pressures, consumers would be flocking to discount retailers. Right now, it appears investors are flocking to Big Lots’ peers.
Thus, I’d argue that most of the demand for BIG stock is coming from short sellers. However, if another systemic shock roils markets and triggers something bigger that prompts another short selling ban like that of 2008, all bets are off for those looking to profit from this volatility.
Novavax (NVAX)
Novavax (NASDAQ:NVAX) was simply too late to the game in the race to produce a Covid-19 vaccine. Despite all of the hype around the stock, that truth was too much to overcome.
Early during the pandemic, Novavax was tapped as a clear leading candidate in the race to develop a vaccine. In July of 2022, the U.S. government awarded the firm $1.6 billion to develop said vaccine. That investment served as a signal to the market that Novavax had something worth getting behind.
It did receive FDA approval, ultimately. But it was the fourth vaccine to do so, and by that time, the race was already over. What remains now is a company that has grabbed headlines in 2023 as one whose ability to continue as a going concern remains in ‘serious doubt’.
Thus, NVAX stock has become a short seller’s dream, primarily. It’s now hanging around for that purpose, and the same caution regarding Beyond Meat and Big Lots applies equally here.
On the date of publication, Alex Sirois 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.
