As the market heats up, it’s time to start to look for undervalued short squeeze candidates
Citigroup believes that the S&P 500 index has a target of 5,000 in 2024. This is likely considering the point that the U.S. has evaded a recession. Further, monetary policy tightening is almost over. Given the positive outlook, it’s a good time to consider some of the best growth stocks.
An important point to note is that when the market sentiment turns bullish, the rally in undervalued short squeeze candidates can be massive. The euphoria of 2021 in growth, penny, and meme stocks is a good example.
It’s also during 2021 that the markets witnessed massive interest in stocks with high short interest. Multi-bagger returns on the back of short squeeze rally was not uncommon.
Let’s discuss seven stocks that are poised to surge higher from undervalued levels.
Riot Platforms (RIOT)
Riot Platforms (NASDAQ:RIOT) stock surged to highs in July, but the stock has slipped after a big rally and currently trades at $12. I believe that RIOT stock is undervalued and with 16.8% short interest, there is a strong case for a short squeeze.
While Bitcoin (BTC-USD) has corrected from highs of the year, I remain bullish on the digital asset. A key reason is that Bitcoin halving is due next year, and the event has translated into a massive rally for the cryptocurrency in the past.
Specific to Riot Platforms, the company has pursued aggressive expansion. To put things into perspective, the company reported Bitcoin mining capacity of 10.7EH/s as of Q2 2023.
The company expects to boost capacity to 20.1EH/s by Q2 2024. Further, if the option to buy additional miners is exercised, capacity is likely to increase to 35.4EH/s by 2025.
Therefore, with a strong balance sheet and massive expansion plans, RIOT stock is among the top undervalued short squeeze candidates.
Marathon Digital (MARA)
Marathon Digital (NASDAQ:MARA) stock is another Bitcoin miner that looks undervalued and poised for a short squeeze rally. I started with two Bitcoin miners as the outlook for the cryptocurrency is bullish.
Standard Chartered expects Bitcoin to touch $120,000 by the end of 2024. If this holds true, some of the best crypto stocks will deliver multibagger returns.
For year-to-date, MARA stock has skyrocketed by almost 300%. However, with the rally from oversold levels, the stock remains attractive. It’s also worth noting that MARA stock currently has a short interest of 26.7%. A Bitcoin rally is likely to spark a big short squeeze upside in the stock.
As of Q2 2023, Marathon reported an operational hash rate of 12.1EH/s. However, the company’s installed hash rate has increased to 21.8EH/s. The company would have already achieved the targeted installed hash rate of 23EH/s in the current month.
Once Bitcoin trends higher, the robust growth in capacity will translate into significant upside in revenue and cash flows.
For year-to-date, EVgo (NASDAQ:EVGO) stock has remained sideways. This indicates the point that the stock has bottomed out after a big correction last year. However, the short interest as a percentage of free-float remains high in the stock. With strong financials, I expect EVGO stock to surge higher in the coming quarters.
Electric vehicle charging infrastructure stocks have been in a downtrend due on concerns of competition and cash burn. However, the selling is overdone and there are several positives to note in terms of financial metrics.
Specific to EVgo, the company reported stellar revenue growth of 457% on a year-on-year basis to $50.6 million. With 3,200 stalls in operation or under construction, I expect revenue growth to remain robust.
However, EVgo has guided for EBITDA level losses of $74 million for the year. There is a case for further equity dilution, but I believe losses will narrow in 2024 and beyond on operating leverage. With a big addressable market in the U.S. and Europe, stellar revenue growth will sustain.
Novavax (NASDAQ:NVAX) had skyrocketed to above $300 in February 2021. This was when there were high hopes of covid-19 vaccine commercialization and robust cash flows.
However, Novavax has been a laggard in the vaccine race and NVAX stock has plummeted to $8.4. Even after a massive correction, the short interest in the stock is around 48%. I believe NVAX stock is among the top undervalued short squeeze candidates.
Novavax recently announced that the company’s protein-based XBB COVID vaccine induced neutralizing responses against emerging sub-variants. On approval, it’s likely to be the only protein-based non-mRNA vaccine option available in key markets. This is a possible fundamental factor for triggering a big short squeeze rally.
Besides this, Novavax is building a pipeline of vaccine for therapeutic areas that include malaria and seasonal influenza. It remains to be seen if the company can make a strong comeback after the covid vaccine disappointment.
Joby Aviation (JOBY)
Joby Aviation (NYSE:JOBY) stock has witnessed a big rally of 117% for year-to-date. I however, believe that the stock is undervalued considering the growth potential. Further, with a short interest of almost 15%, a short squeeze rally is on the cards backed by positive business developments.
As an overview, Joby Aviation is engaged in the development of electric vertical take-off and landing aircraft. In July, the company completed the submission of stage three certification plans to the Federal Aviation Administration. The company’s first prototype has begun flight testing.
With commercialization nearing, I expect JOBY stock to trend higher. An important point to note is that Joby ended Q2 with cash and equivalents of $1.2 billion. This provides ample flexibility to invest in research and commercialization.
Joby Aviation has a backlog worth $131 million from the U.S. Air Force. As the backlog swells in the coming quarters, the outlook for the stock will remain bullish.
QuantumScape Corporation (QS)
Amidst high volatility, QuantumScape (NYSE:QS) stock has corrected by 33% over a 12 month period. With the short interest remaining high at 16.5%, I believe that a short squeeze rally is on the cards for this undervalued stock.
As an overview, QuantumScape is a development stage company that’s focused on commercialization of solid-state batteries.
The company claims to have 12 years of research and development with more than 300 patent and applications. Further, QuantumScape has six commercial agreements with automotive original equipment manufacturers.
Of course, these numbers look good. However, QS stock has remained volatile with commercialization still few years away. However, business progress remains steady and that’s likely to trigger price action.
As an example, the company has shipped high cathode-loading unit cells to multiple automotive partners. Further, the company’s A0 prototype cell has passed safety tests set by a leading automotive customer.
Transocean (NYSE:RIG) stock has surged by almost 90% for year-to-date. However, I believe that the stock remains undervalued and is due for a rally. The short interest in RIG stock is high at 22% of the free-float. If quarterly results are robust, a massive short squeeze rally is on the cards.
As an overview, Transocean is a provider of offshore drilling services with focus on deepwater and ultra-deepwater floaters. As of July, the company reported an order backlog of $9.2 billion. The backlog provides clear revenue and cash flow visibility.
With the order intake being healthy, I believe that Transocean is positioned to report healthy cash flows in the next few years. It’s not surprising that the company is targeting debt reduction of $3 billion. As credit metrics improve, RIG stock will trend higher.
I also believe that oil has bottomed out. If crude is back above $100 per barrel, offshore drilling activity will accelerate. This will benefit Transocean.
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.