Inspired by the Reddit forum WallStreetBets’ success in driving a never-before-seen meteoric rally in heavily shorted GameStop (NYSE:GME) stock, retail investors have waged an all-out war against short-sellers, piling into heavily shorted stocks all across the market and sparking short squeezes in many of these names. Some of these so-called “short-squeeze stocks” are doubling, tripling and even quadrupling their value in just days.
A lot of investors and analysts want to chalk up these rallies as little more than short-squeeze mania. They don’t expect the rallies to last. Indeed, they expect all of these short-squeeze stocks to collapse once the mania fades.
For some of these stocks, that’s certainly what will happen, because the fundamentals underlying the company remain weak. Once the mania passes and the focus returns to the underlying fundamentals, the stock price will crash to reflect the weak fundamentals.
But let’s not throw the baby out with the bath water.
This isn’t true for all short-squeeze stocks.
You see, some of these short-squeeze stocks actually have strong fundamentals. So, once the retail-driven short-squeeze mania passes and the focus returns to the fundamentals, the stock prices will remain elevated … and will continue to move higher over the next several years on the back of strong revenue and earnings growth.
In other words, some of the short-squeeze stocks going nuts right now actually double as strong stocks to buy for the long-term.
Short-Squeeze Stocks: The Big Guns
To start, I like fuboTV (NYSE:FUBO). FUBO stock was targeted by multiple short-sellers in December as a commoditized live TV streaming platform with broken economics and a bleak future. That’s why an astounding 65% of the float is sold short.
But fuboTV is an innovator at the epicenter of the seismic shift in consumers and ad dollars from linear TV to streaming TV. By the end of the decade, pretty much every household in the world will swap out their clunky, expensive cable TV package, with a cloud-hosted, cheap live TV streaming service. fuboTV will be one of the more important players in this market, thanks to its first-mover’s advantage, branding edge, and sports-first focus (the company is in the process of acquiring exclusive sports content and launching a digital sportsbook).
To that extent, FUBO stock is a long-term winner. It just also happens to be a heavily shorted stock. That’s a powerful combination for bulls.
Another short-squeeze stock I like is Virgin Galactic (NYSE:SPCE). With 31% of the float sold short, SPCE stock is the most shorted space stock in the market today, and that’s probably because investors doubt the company’s ability to actually launch commercial space flight operations anytime soon.
But Virgin Galactic performed multiple successful test flights in 2020, the sum of which imply that commercial space flight operations are, indeed, just around the corner. From there, Virgin Galactic will be able to build out a robust commercial space flight business with big demand and huge margins, the likes of which will spark enormous profit growth. Not to mention, the company will also make inroads over the next few years on selling its propulsion technology to airplane makers.
As all that happens, SPCE stock will explode higher and prove shorts wrong.
Don’t Count Out Robots, Plant Food or EVs
IRobot (NASDAQ:IRBT) will prove shorts wrong, too. About 37% of the float is sold short. But this is the unrivaled leader in the booming robotic vacuum cleaner marker that will one day represent the majority of the global vacuum market. iRobot vacuums will be in most homes by 2030. On its journey to household ubiquity, iRobot will sustain strong revenue and profit growth trends — the likes of which will power IRBT stock higher.
Meanwhile, investors are broadly underestimating the plant-based food megatrend. That’s why both Beyond Meat (NASDAQ:BYND) and Tattooed Chef (NASDAQ:TTCF) have over 20% short interest. Yet, plant-based foods will takeover global diets over the next decade. As they do, both BYND stock and TTCF stock will turn into big winners.
Investors are also underestimating the electric vehicle megatrend. EV charging station operators Blink Charging (NASDAQ:BLNK) and ChargePoint (NYSE:SBE), as well as electric van maker Workhorse (NASDAQ:WKHS) and electric car disruptor Canoo (NASDAQ:GOEV), all feature 25%-plus short interest. This short interest is misplaced. Charging stations will replace gas pumps. Electric vans will replace gas-powered cars. BLNK stock, SBE stock, and WKHS stock will all turn into long-term winners with huge profits at scale.
Solar and E-Commerce Stocks Have Huge Upside
In the solar world, short-sellers are targeting SunPower (NASDAQ:SPWR). SPWR stock has 54% short interest. This makes no sense to me. SunPower is the leader in the premium solar panel category, with huge technology advantages that should sustain its leadership position for the foreseeable future. So long as the company maintains that position, SPWR will keep powering higher — assisted by some short squeezing.
In the e-commerce world, short-sellers have it out for BigCommerce (NASDAQ:BIGC), Stitch Fix (NASDAQ:SFIX), and Chewy (NASDAQ:CHWY), all three of which have 20%-plus short interest. But BigCommerce is basically a mini-Shopify (NYSE:SHOP), and Stitch Fix’s data-driven shopping process represents the future of apparel shopping. Meanwhile, Chewy is virtualizing pet goods shopping in the same way Etsy (NASDAQ:ETSY) virtualized arts & crafts shopping.
All three companies have big long-term growth potential. BIGC stock, SFIX stock, and CHWY stock are all long-term winners.
At the same time, I like Tabula Rasa Healthcare (NASDAQ:TRHC) and Appian (NASDAQ:APPN). The former is a great play on a data-driven revolution in healthcare. The latter is a great play on the emerging App Economy. Both are hypergrowth companies with big potential. Yet, both have 20%-plus short interest.
Bottom Line on Short-Squeeze Stocks
Not all short-squeeze stocks are great stocks to buy.
After all, there is a reason they are heavily shorted, and it’s often because the underlying fundamentals of the company suck.
But, short-sellers aren’t always right. And sometimes, a heavily-shorted stock also has great fundamentals and a ton of long-term potential. These high-quality, fundamentally strong short-squeeze stocks are the top stocks to buy amid this short-interest mania.
I suggest you take a good hard look at the 15 names I gave you above. Between strong fundamentals and big short-squeeze potential, these stocks have promising near- and long-term outlooks.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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