Yet, when these stocks unexpectedly rise, a so-called ‘short squeeze’ ensues, forcing traders to buy back shares at higher costs, and thereby unlocking the potential for massive price increases.
Amidst this complexity, Finbold has analyzed the most shorted stocks as of October 18, pinpointing two that could witness substantial growth in the current market circumstances.
2Seventy Bio (NASDAQ: TSVT)
In the long list of highly shorted stocks, one that caught our attention is 2seventy Bio – a biotechnology company focused on discovering and developing innovative therapies for treating cancer.
According to MarketWatch data, 34.34% of the 2Seventy’s float is currently being shorted by investors, which represents a considerable figure. The bearish sentiment toward the stock is reflected in its year-to-date performance, which currently sits at -55%.
But despite this pessimism, most of the analysts who covered TSVT in the past three months did not reflect this bearish attitude.
In fact, the consensus 12-month price target for the biotech stock is $13.25, 224% higher than its current market price, based on 5 Wall Street experts who covered TSVT in the past three months.
As such, TSVT is currently rated as a Moderate Buy at TipRanks, with two analysts recommending a Buy and 3 advising a Hold.
If the company’s stock price comes close to the projections set by analysts for the next 12 months, it could force those who shorted it to buy back TSVT at higher prices, potentially triggering a short squeeze.
NanoString Technologies (NASDAQ: NSTG)
Another biotech company, NanoString Technologies (NASDAQ: NSTG) is the pioneer in the world of spatial biology, enabling global scientists to visualize molecular interactions in 3D with its automated workflow platforms.
NanoString has witnessed an even sharper decline in 2023, losing more than 77% of its value since the start of the year.
However, like with 2Seventy, the analysts do not share this downbeat sentiment. Indeed, the average 12-month price target for NSTG currently stands at $9.30, based on 5 analysts’ views shared in the past three months, according to TipRanks.
That is about 444% higher than NanoString’s present stock price.
As such, NSTG carries a consensus assessment of Strong Buy, with 4 market experts covering the stock with a Buy rating and 1 advising a Hold in the past three months.
Should the analysts’ forecasts materialize, a resurgence in NanoString’s shares could leave short traders in a precarious position, potentially opening the door to a short squeeze and, consequently, a substantial surge in their prices.
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