Generally speaking, investors only consider price appreciation when it comes to making profits in the stock market, but it is also profitable to look for stocks to short as falling share prices create a lot of opportunity. Buy shares from a broker and sell them in anticipation that they fall in price. When they do, buy them back and give the shares to the broker, keeping the difference. It’s risky because when prices rise, you still need to buy them back, return them, and eat the loss.
That’s the gist of it. These firms are all headed in the wrong direction overall. That means their prices will likely continue falling, creating profitable short-selling opportunities.
Stocks to Short: Big Lots (BIG)
Big Lots (NYSE:BIG) is getting closer to a critical juncture that threatens its stock. The discount retailer continues to contract, and most investors are very bearish regarding its prospects, and roughly 30% of its float is sold short.
I fully expect the BIG stock to get worse for obvious reasons. Its fundamental situation is untenable for much longer. In the first half of 2022, the company posted a $95 million loss on $2.72 billion in sales. It was clearly struggling at that point. Fast forward a year, and sales dropped 16.8% to $2.26 billion. That led to losses of $495 million. Big Lots reported $258 million in liquidity at that point. It suspended its dividend in May.
It’s going to fall further. The only issue is that the company has $159 million remaining of $250 million earmarked for repurchases from 2021. It can use that to inflate the prices of shares at its discretion. Since investors can only expect it to happen and not predict when it will happen, it’s perhaps best to ignore that issue and short regardless.
GameStop (GME)
GameStop (NYSE:GME) stock is in real trouble now. Things have come full circle at the company that became prominent because of Ryan Cohen’s efforts. He called for GameStop to invest in e-commerce early in the pandemic. Short selling was very high then; most were betting against the firm.
He ultimately joined GameStop’s board, which sent prices upward quickly. GameStop then moved toward implementing increased e-commerce functionality, installing a series of executives with experience in the sector. Now Ryan Cohen is back as CEO, and GameStop still has to figure out how to transition to a digital business model.
It is focused on cost-cutting measures, though, right now. That means it will have less money directed at improving its digital presence. Even if it did, it has burned through so many eCommerce executives that it’s likely too broken to fix. Its efforts to leverage NFTs and a partnership with Sam Bankman Fried and FTX only make it look that much worse as a legitimate business endeavor.
Beyond Meat (BYND)
You can say many things about Beyond Meat (NASDAQ:BYND) and its stock. However, I’d summarize all of it with one word: Disappointing. The hype surrounding plant-based meat alternatives has not resulted in much positive. As I write, share prices have fallen from $200 during the pandemic to below $10.
Sales were down more than 30% in the second quarter. The company reacted by slashing guidance for the remainder of 2023. At the beginning of August, the reasoning was what you’d expect. Demand expectations haven’t materialized, recession fears, inflation, etc.
Recession fears are getting worse as we enter October. September was very tough on the markets overall. The Fed has signaled that rates will stay higher for longer than previously anticipated. That will only serve to ramp up recession fears. In short, Beyond Meat is now worse than it was in early August, and its 2023 guidance will likely fall further as consumers buckle down. They weren’t buying Beyond Meat products then, anyway.
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.
