Among many elements of investing, stocks with significant short interest often steal investors’ attention as they offer the potential for a sudden and explosive surge.
Investors have adopted a common strategy of closely monitoring stocks with a substantial percentage of their float shorted, anticipating the possibility of a ‘short squeeze.’
This phenomenon occurs when heavily shorted stocks witness a frenzied rush by traders to cover their positions, resulting in a dramatic uptick in demand and prices.
Picks for you
Today, on October 2, we explore the intriguing prospects of two such stocks with the potential for a remarkable turnaround.
Marathon Digital (NASDAQ: MARA)
Founded in 2010, Marathon Digital (NASDAQ: MARA) is one of the world’s biggest crypto mining companies. Led by American business executive Fred Thiel, the company went public in 2012, hitting an all-time high of more than $154 just two years later amid one of the first Bitcoin (BTC) bull markets.
Today, the stock is trading 95% lower than its peak and is one of the most shorted stocks in the US. According to MarketWatch data, over 31% of MARA’s float is shorted by investors, even though the stock surged over 150% this year.
However, in spite of such high short interest, the majority of analysts are optimistic about Marathon Digital’s prospects in the stock market. Notably, five analysts who offered their 12-month forecasts for MARA set an average price target of $15.4, which is over 81% higher than its current price.
At the same time, the blockchain stock has an average analyst rating of ‘Buy’ on TradingView, based on seven market experts who rated the stock in the past three months. Three of them see MARA as a ‘Strong Buy,’ while 4 advise a ‘Hold.’
If these predictions come to fruition and MARA surges to levels predicted by analysts, it would increase the odds of a potential short squeeze and, thereby, significant investor returns.
Enovix Corporation (NASDAQ: ENVX)
Another company that attracted substantial short interest among investors is silicon battery maker Enovix Corporation (NASDAQ: ENVX). Based in California, this company designs, develops, and produces sophisticated silicon-anode lithium-ion (Li-ion) batteries via its three-dimensional (3D) cell architecture.
Per MarketWatch, 30.95% of Enovix’s float is currently shorted. The stock saw insignificant returns in 2023, climbing around 3.5% year-to-date.
Even so, analysts are all but bearish on ENVX. In particular, the average 12-month price target on the stock currently sits at $31.42, implying a potential upside of more than 150% from its current market price of $12.55.
Additionally, the consensus analyst rating is ‘Strong Buy,’ according to TradingView, based on 11 ‘Strong Buy’ suggestions in the past three months and just 1 ‘Hold.’
With Enovix trading miles away from its all-time high and the elevated short interest, a possible rebound in the battery maker’s shares could result in a considerable short squeeze and, hence, a massive price rally.
While the potential for a short squeeze can be tantalizing, it’s crucial to remember that it depends on a multitude of factors and may not always materialize as expected. Traders should exercise caution and conduct thorough research before diving into stocks with high short interest, as market dynamics can change rapidly, and risks abound in this volatile terrain.
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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.
