Stocks that are heavily shorted have the potential to skyrocket as traders are forced to cover their short positions by buying back the stock. This can be an extremely profitable strategy if you find the right stock at the right time.
Because the interest for shorted stocks remains, Finbold analyzed the most shorted stocks this year on August 14 and selected the two that have a high potential for lift-off.
BioXcel Therapeutics
BioXcel Therapeutics (NASDAQ: BTAI) is a biopharmaceutical company that uses AI in its approach to developing medicine in neuroscience and immuno-oncology.
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The company saw an increase in short interest by 69% in July, making a total of 43% short of the company’s floating shares. This is one of the most-shorted stocks as of July.
Morningstar’s quantitative equity report places a fair value of $17.4 per share. With the current share price of $7.4, that’s a 135% increase should this price be reached. If it happens, this is likely to cause a massive short squeeze.
Morningstar quantitative equity report. Source: Interactive Brokers Fundamentals Explorer
BioXcel announced it intends to cut 50% of its cash burn in its Q2 earnings report on August 14. The company will also reduce its workforce to 80 employees from 190. This should help BioXcel have cash reserves until mid-2024.
The company also announced it would shift its commercial strategy to focus on deals with large hospital systems.
Allogene Therapeutics
Allogene Therapeutics (NASDAQ: ALLO) is a clinical-stage immuno-oncology company. The company aims to develop genetically engineered allogeneic T-cell products for treatment of cancer.
This is the most shorted stock as of July, with over 54% of float shorted.
Morningstar’s analyst equity report has a relatively high fair value estimate of $8 per share. That’s a 90% increase from the current price of $4.2.
Morningstar analyst equity report. Source: Interactive Brokers Fundamentals Explorer
Allogene is down 27% year to date, while BioXcel is down 65% during the same period. Both are heavily outperformed by the S&P 500’s 17%.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
