After a bullish January, these stocks have entered the crosshairs of short-squeeze hunters.
After 2022's bear market, January proved to be a very positive month for stocks. Investors were feeling more confident that inflation had peaked and that the Fed's monetary policy had become more predictable.
At the same time, retail investors interested in speculative stocks have driven a rally in early 2023. These stocks have fallen victim to heavy short selling due to their problematic business fundamentals.
In fact, retail investors are trading some of these companies with a single objective: to squeeze short sellers.
As the bullishness in the markets extends into February, here are some names that made significant gains in January and that may see further short squeezes this month.
Home goods retailer Bed Bath & Beyond 's ( BBBY ) - Get Free Report very existence is hanging in the balance. The company has been facing financial difficulties and moving closer to bankruptcy with each passing quarter.
CEO Sue Gove has not ruled out filing for chapter 11 amid the company's high debt load of roughly $2 billion. Bed Bath & Beyond's operating loss has grown to $225 million, with only $153 million in cash left.
But since the bankruptcy buzz around the company has gotten stronger, shares have been engaging in an intense rally.
Experts point out that one of the reasons for this rally is the fact that institutional investors are dumping their long holdings by two-thirds, while short interest in BBBY has risen by two-thirds.
Shares rose as much as 124% in a certain period in January, and borrow rates of over 200% were recorded at the end of the month. With more than half of the company's stock float being shorted, a short squeeze in Bed Bath & Beyond is still very feasible.
Bed Bath & Beyond is one of the most popular meme stocks on social media forums where traders are looking to profit from its momentum.
If the company does indeed file for chapter 11 in February, it's possible that some exaggerated short-term movements could imply sizable losses for short sellers.
The company was a meme stock in August 2021, when its shares reached $370. Today it is trading at $10 per share.
Currently, Carvana is one of the most shorted stocks in the entire stock market. About 60% of its total float is shorted.
And this, coupled with its popularity among retail investors, has been fueling short squeezes since the beginning of this year.
Wall Street is so bearish on Carvana because last year's interest rate hikes put pressure on the company's auto loan business. Fewer drivers took out loans to finance their used vehicle purchases.
Also, in 2021, Carvana saw an overvaluation of its share price amid a used car bubble that eventually burst and sent prices into rapid decline. As a result, Carvana reported year-to-date 2022 operating losses of over $1.1 billion, versus $104 million losses in 2021.
Last month, retail investors took advantage of the optimistic start to the markets and squeezed short positions by joining a momentum trade. Carvana saw a rally of more than 100% in January.
Considering that the stock remains oversold, a positive broad market trend may be just enough for further rallies in February as short sellers get squeezed.
Blue Aron – $APRN
New York-based Blue Apron ( APRN ) - Get Free Report is a company that delivers recipes and ingredients to consumers and also operates an online platform where it sells pantry items and other related products.
The stock became popular among the retail investor community after a report by Citron Research — the firm that lost a fortune during GameStop 's ( GME ) - Get Free Report short squeeze — sent Blue Apron's shares down 87% year over year.
The report pointed out that the company had the potential to quadruple its share price as one of the "greatest corporate turnaround stories of this century."
As it turns out, Blue Apron's shares have fallen 87% since the same period last year and now trade at around $1. The company has suffered from rising costs, pushing the prospect of generating a profit further and further away.
Blue Apron also issued about $15 million in equity, diluting its float and attracting a lot of skepticism from the market. Currently, about 40% of its float is being shorted.
The stock often gets a lot of attention from retail investors on social media. It's on the radar of traders who see Blue Apron's volatility as a potential short-squeeze play — especially with borrow fees between 18%.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)
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