7 Stocks Setting Up for a Major Short Squeeze
In 2020, r/WallStreetBets captured business news headlines. The forum squeezed hedge funds that bet foolishly against GameStop (NYSE:GME). In hindsight, the group created frenzied momentum buying short squeeze stocks at the perfect time. The government locked down the economy. To offset depression-level economics, governments gave free money to people while slashing interest rates to historic lows.
Speculators had nothing to lose with the stimulus checks. They bought GME stock to hurt the evil hedge funds.
2022 repeated the GameStop major short squeeze with Bed Bath & Beyond (NASDAQ:BBBY). GameStop shareholder and Chewy (NYSE:CHWY) founder Ryan Cohen took an activist role at Bed Bath & Beyond. Through RC Ventures, Cohen held a decisive 11.8% stake in the retailer.
Although Cohen and RC Ventures have since closed their positions, BBBY stock soared to the moon first. If you want to experience that speculative frenzy again, here are the top short squeeze stocks to watch.
| BBBY | Bed Bath & Beyond | $9.24 |
| CVNA | Carvana | $35.96 |
| COIN | Coinbase | $71.47 |
| CRSR | Corsair | $15.52 |
| LCID | Lucid Motors | $16.10 |
| FOUR | Shift4 Payments | $44.24 |
| TDOC | Teladoc | $32.71 |
Bed Bath & Beyond (BBBY)
Bed Bath & Beyond (NASDAQ:BBBY) potentially completed its major short squeeze. Speculators who failed to sell the stock before Cohen sold his entire stake may now close their position.
On its conference call, the company said it is searching for a permanent CEO. It needs a talented leader who knows the merchandise space and modern retailing. In addition, the new CEO needs to lead Bed Bath & Beyond to develop its digital and omnichannel capabilities. Furthermore, the leader must execute with minimal operating expenses.
This retailer has limited cash. In the last quarter, the firm posted net sales of $1.46 billion. Comparable sales fell by 23% year over year. Bed Bath & Beyond burned through $400 million in cash flow from operations. It lost another $100 million from investing activities. Its financing activities offset the negative FCF by adding $200 million.
Debt is the company’s enemy in this rising interest rate environment. The retailer ended the quarter with $1.38 billion in debt, up from $1.18 billion last year. Its high cash burn rate will pressure the firm’s balance sheet.
Carvana (CVNA)
Bears are selling 44% of the float short with Carvana (NYSE:CVNA). The e-commerce automobile retailer has no moat. In addition, it has solvency issues as operating costs rise. It also has limited capacity while fixed costs rise.
Carvana cannot scale its business to profitability. In the last quarter, CEO Ernie Garcia blamed the economic landscape that led to a rapidly changing industry. This caused Carvana’s expenses to fall out of balance with sales volumes. Despite the CEO’s recognition of cost issues, it praised its Adesa acquisition as transformative over time.
Traders may bet on a major short squeeze on CVNA stock. Markets will likely cling to the hope that the company will manage its costs effectively. For example, in the last quarter, Carvana grew its units sequentially by over 10%. It lowered its total sales, general and administrative costs by 5%. The SG&A per unit fell by $850 to $5,400 in the quarter.
Bet on unit sales strength in the current quarter.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) sees its valuation change wildly each day. Why? COIN stock reacts to the volatility in Bitcoin (BTC-USD) prices. Last Friday, Aug. 19, Bitcoin prices fell toward the $21,000 level. COIN stock fell similarly as a result.
In its shareholder letter, Coinbase said that it is operating in stressed market conditions. However, it initiated expense management in the second quarter. It is optimistic that it can operate successfully within a $500 million adjusted EBITDA guardrail.
In 2022, Coinbase expects monthly transaction users (or MTU) of 7 million to 9 million. This is below its previous guidance of between 5 million to 15 million.
Corsair Gaming (CRSR)
Corsair Gaming (NASDAQ:CRSR) makes high-end accessories for the desktop PC market. After bottoming at $12.23, CRSR stock rallied to $18 in August. The short percentage of the float is 19.9%, setting up bulls for a major short squeeze.
In the second quarter, Corsair posted revenue that fell by 40% YOY to $283.91 million. The company said that the adverse impact of macroeconomic headwinds hurt consumer spending on gaming gear.
Corsair commands around 7% of the memory semiconductor market. In the gaming peripherals division, it faces significant competition. In addition, it must work through excess inventory. Corsair might write down its inventory or sell products at a discount. This will lead to quarterly losses.
The company is hopeful that people will resume their activity of building gaming PCs. Graphics card prices hurt demand in the last two years. Retailers charged up to three times the manufacturer’s suggested retail price. The supply glut lowers the price of PCs. This should drive demand levels higher than the most bearish forecast.
Corsair stock could rally to the high teens from here.
Lucid (LCID)
Lucid Group (NASDAQ:LCID) is the target of bears with the short percentage float at 21%. The company posted revenue of only $97.3 million in the second quarter. LCID stock trades at a market capitalization of $27 billion. The lowered production outlook to a range of 6,000 to 7,000 vehicles is disappointing.
The more units Lucid sells, the more money it loses. This broken business model validates the bearishness against the company. To distract bears, Lucid introduced Sapphire, a new luxury brand. The company is dangling a shiny thing to shareholders.
It might help the stock.
The Lucid Air Sapphire has 1,200 horsepower. It will cost $249,000. It set an Aug. 23, 2022 date for reservation intake. Lucid expects to begin production in the first half of 2023.
Speculators may bet on LCID stock rebounding for a good trade.
Shift4 Payments (FOUR)
Shift4 Payments (NYSE:FOUR) bottomed below $30 during the bear market. FOUR stock recently pulled back from around $51.
In the last quarter, the integrated payments and secure commerce technology firm posted revenue that rose by 44.4% YOY to $506.7 million. It earned 33 cents a share. For 2022, it expects gross revenue of $1.9 billion to $2 billion. Furthermore, it raised its adjusted EBITDA range from $255 million to $265 million.
Shift4 has multiple gateways to accelerate growth. For example, it touches around 40% of the hotel lodging volume in the country. Investors expect customers will want more commerce experiences. They will move to its end-to-end platform. As a result, customers get a lower cost of service.
Shift4 Payments expects to get around $3 billion in end-to-end volume from its new verticals. Patient investors need to wait for the firm to develop its integration with third-party software firms. Once complete, business momentum will improve.
Teladoc Health (TDOC)
In the virtual healthcare space, Teladoc Health (NYSE:TDOC) is a stock you should own.
However, the company faces severe challenges ahead. Its customers have shrinking spending budgets. This will slow Teladoc’s sales cycle in the coming quarters.
Patient investors might bet that Teladoc’s Livongo acquisition for $18.5 billion will pay off. Teladoc already took a massive $18.78-a-share or a $3 billion impairment charge. This cost is a result of a fall in TDOC stock. In the last quarter, it increased its discount rate and decreased market multiples to reassess the value.
Teladoc lowered its EBITDA guidance from negative $41 million to positive $8 million. It will lose up to $62 million. The weak guidance should not deter investors from seeking a major short squeeze. Teladoc might report better results in the fourth quarter. After spending on marketing and advertising, the business for its BetterHelp might rebound. In Q4, the company typically benefits from a strong holiday season.
Watch for Teladoc’s operating margin to climb in the next few quarters. It is controlling costs and initiating strategic advertising campaigns to boost its business.
On the date of publication, Chris Lau 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.
