Investing
Are These 4 Companies With Massive Short Interest the Next Big Winners?
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Unless they were on another planet last week, everybody saw the gigantic moves in companies with huge short interest. The Reddit retail army of investors took some big hedge funds to the woodshed with massive buying of AMC Entertainment, American Airlines, Bed Bath & Beyond, GameStop, Koss and others. Some have estimated that the losses at hedge funds that had shorted these names was as high as $70 billion.
While attacking shorts is nothing new on Wall Street, the huge influx of retail traders over the past year is. In fact, with trading volume skyrocketing since the no commission era started, it is estimated that retail trading volume is as much as 20% of the total trading volume every day. You can bet that the massive gains for the little guy will attract even more to the table.
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We would like to be clear that day trading shorted stocks, while having the potential for big profits, is not investing. There are big risks, as we saw huge moves on GameStop both up and down. If you got caught on a 100-point or larger swing down, that could have been very painful. Day trading is only for people that are very aware of what can happen, have big-time risk tolerance and can afford to lose some or all their trading capital.
With that caveat in place, we ran a screen looking for the stocks with big short interest and high borrow costs across Wall Street. We screened for companies that have solid prospects and could be the next stocks that the Reddit retail army goes after. We also looked for companies with solid Buy ratings at major Wall Street firms.
Clovis Oncology
This top biopharmaceutical company has been mentioned as a takeover candidate for years. Clovis Oncology, Inc. (NASDAQ: CLVS) is focused on acquiring, developing and commercializing anti-cancer agents in the United States and internationally.
Its commercial product includes Rubraca (rucaparib) tablet, a small molecule poly ADP-ribose polymerase inhibitor, used as monotherapy for the treatment of patients with deleterious BRCA mutation associated advanced ovarian cancer, who have been treated with two or more chemotherapies and selected for therapy by an FDA-approved companion diagnostic for Rubraca.
Rubraca is also approved by the FDA for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. FDA granted regular approval for Rubraca in this second, broader and earlier-line indication on a priority review timeline based on positive data from the Phase 3 ARIEL3 clinical trial. Biomarker testing is not required for patients to be prescribed Rubraca in this maintenance treatment indication.
H.C. Wainwright has a $15 price target on the shares, but the Wall Street consensus target is down at $7.33. Clovis Oncology stock closed Friday at $7.90 a share. A massive 41% of the float shares are sold short.
FuboTV
This streaming company is also a very solid play for gambling. FuboTV Inc. (NYSE: FUBO) is a digital entertainment company focused on offering consumers a live television streaming platform for sports, news and entertainment. It is a virtual multichannel video programming distributor that streams in 4K. Its subscription-based services are offered to consumers who can sign-up for accounts, through which it provides basic plans with the flexibility for consumers to purchase the add-ons and features suited for them.
FuboTV may be getting ready for massive growth in 2021 as it continues to push harder into sports streaming and, more importantly, sports wagering and a fantasy league platform.
The Needham price target for FuboTV stock is $60, well above the $44.25 consensus target and Friday’s $42.25 closing print. There is a huge 58% of the float shares sold short.
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iRobot
Those with a Roomba know this company, and it is a solid idea for the future as well. iRobot Corp. (NASDAQ: IRBT) designs, builds and sells robots to the consumer market in the United States, Europe, the Middle East, Africa and elsewhere.
It offers Roomba floor vacuuming robots, Braava family of automatic floor mopping robots, Terra robotic lawn mower products and Root robots designed to help children learn how to code. The company sells its products through distributor and retail sales channels, as well as through online stores and resellers.
The $80 Doughty price target compares with the consensus target of $99.20. Shares closed way above both levels Friday at $120.10. Some 38% of the shares in the float are sold short. Note that the company is due to report earnings of February 10.
SunPower
This stock has been running hard but remains a Goldman Sachs favorite. SunPower Corp. (NASDAQ: SPWR) designs, manufactures and delivers solar systems to residential, commercial and power plant customers worldwide. The company provides solar power components, including panels and other system components. French energy giant Total owns a 57% stake in the company.
The company also offers operations and maintenance services, including remote monitoring, and preventative and corrective maintenance services, as well as rapid-response outage restoration services. Further, it leases solar power systems to residential customers and sells inverters manufactured by third parties.
SunPower serves investors, financial institutions, project developers, electric utilities, independent power producers, commercial and governmental entities, production home builders, residential owners and small commercial building owners.
Goldman Sachs has set a $33 price target. The consensus target is $24.12, and SunPower stock closed at $54.01 a share on Friday. Some 28% of the shares in the float are short.
While the short interest for all these stocks has dropped considerably from January 15, the bottom line is that if they become the target of the Reddit traders, they still have more than enough to send the shares soaring. In addition, they could really take off with positive earnings news or any other catalyst that would spook the short sellers.
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