A short squeeze happens when traders who heavily short a stock start to cover their short positions by buying back the stock. This increases demand for the company shares, thus increasing the price and forcing other short sellers to cover their positions. The more a stock is shorted, the bigger the squeeze.
Because the interest for shorted stocks remains, Finbold analyzed the most shorted stocks this year and selected the two that have a high potential to keep going.
Lucid Motors
Lucid (NASDAQ: LCID) is an electric vehicle manufacturer based in the US. The company started delivering its Lucid Air sedan in October 2021. However, production hasn’t been smooth mostly because of supply chain issues and lower demand — its cars have a starting price of $87,000 — which is why Lucid is one of the heavily shorted stocks.
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A company being shorted means investors and traders are betting that the company will fail. Lucid’s short interest as of June stands at 41% float, meaning almost half of all shares on the market are being shorted.
Meanwhile, analysts are calling for a price target of $8, which is a 20% gain from the current price of $6.62.
Refinitiv analyst ratings. Source: Interactive Brokers Fundamentals Explorer
To push the stock higher and force short sellers to cover their positions there has to be a strong catalyst. That could be Lucid’s Q2 earnings report released today after the bell. However, Lucid delivered 1,404 of its electric Air luxury sedans in the second quarter, while analysts expected 2,000 deliveries, meaning earnings could disappoint and investors should look for other catalysts.
Regardless, shorts have to cover their positions eventually if the stock starts rising. Make sure to keep an eye on this stock.
Upstart
Upstart (NASDAQ: UPST) is an AI lending platform that partners with banks and credit unions to provide consumer loans. The AI part of it is used to predict creditworthiness based on metrics such as education and employment.
This stock has a 37% of float shares shorted, making it one of the top 10 shorted stocks as of June.
However, analysts from Riley Securities have a target price of $49, which is below the current price of $60, while BTIG has a buy rating and a target of $72.
Refinitiv analyst ratings. Source: Interactive Brokers Fundamentals Explorer
Lucid has returned 7% year to date, while Upstart has returned 371% during the same period. Only Upstart out of the two has outperformed the S&P 500’s 17% return.
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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.
