Buying stocks before a short squeeze can be an extremely profitable strategy. That’s because traders who short a stock will have to cover their short positions by buying back the stock eventually.
This increases demand for the company shares and puts pressure on everyone else who is shorting the stock to buy it back. A successful short squeeze can propel the stock price tenfold.
Because the interest for shorted stocks remains, Finbold analyzed the most shorted stocks this year on August 8 and selected the two that have a high potential to keep going.
Marathon Digital Holdings (NASDAQ: MARA) is a Bitcoin mining company that boasts of being one of the largest and most energy efficient. Technically, you can use MARA as a Bitcoin proxy investment.
MARA has 26% of floating shares shorted as of June. If Bitcoin’s price starts to rise, it is expected to push Marathon’s stock higher. Short sellers will have to cover eventually or suffer losses, which should push the stock price even higher.
Morningstar’s quantitative equity report places a fair value of $25.77 per share. With the current share price of $15, that’s a 71% increase should this price be reached.
Morningstar quantitative equity report. Source: Interactive Brokers Fundamentals Explorer
Marathon will report its Q2 earnings today, August 8, after the bell. The consensus estimate is -$0.04 per share with a revenue estimate of $92 million. If earnings beat estimates, we could see the price test its $20 resistance level soon.
Beyond Meat Inc. (NASDAQ: BYND) is a US-based plant-based meat producer. This is the only plant-based meat-producing company to ever go public, which makes it unique.
However, BYND stands at 35% shorted float as of June, making it one of the top 10 most shorted stocks. So far, the shorts have had a good run. BYND’s Q2 earnings call had some bad news: the company is likely to miss its cash flow target and fail to achieve cash flow positive operations this year. Net sales are also likely to be lower than analysts expected.
Morningstar’s analyst equity report has a relatively high fair value estimate of $25 per share. This is around a 70% increase from the current price of $15.28. Should this price get reached, a short squeeze may follow next.
Morningstar analyst equity report. Source: Interactive Brokers Fundamentals Explorer
Marathon has had a massive run this year, returning 343% to investors, while Beyond Meat has slightly outperformed S&P 500’s 17% return with a 23% return year to date.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.