Trading a short squeeze is a strategy where you find heavily shorted stocks and you wait for the short sellers to start covering their positions. This often pushes the price higher and beyond any real valuation.
This can be a profitable trading strategy, which is why Finbold analyzed the most shorted stocks this year and selected the two that have a high potential to take off this September.
Novavax
Novavax is a biotech company that develops and commercializes vaccines against serious diseases. During the COVID-19 pandemic, Novavax developed a vaccine that wasn’t used much. Now, with new strains emerging, the Centers for Disease Control (CDC) expects the Pfizer, Moderna, and Novavax vaccines to be available to the public in mid-September.
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Recently, Reuters reported that the Novavax updated vaccine generated an immune response against the Eris subvariant in small studies in animals.
This is the most shorted stock, with 46.11% of the float shorted. That’s 40 million shorted stocks out of 86.9 million, as of August 31 data. If the countries purchase Novavax vaccines for the Fall and the company increases its revenue, the short squeeze could be epic.
Morningstar’s equity report has put a fair value of $16.59 per share. That’s 125% above the current market price of $7.36.
Axcella Health Inc.
Axcella Health Inc. (NASDAQ: AXLA) is a clinical-stage biotech company focused on finding new approaches to treat diseases using endogenous metabolic modulators (EMMs). Its pipeline includes therapeutics for treating long COVID-associated fatigue.
This company has 9.9 million shares shorted out of 26 million float, which comes out to 37% shorted.
Some form of short squeeze has likely happened since late August, when the stock surged 1,116% in two weeks.
Morningstar’s equity report gives a $0.75 fair value, which is 36% below the current market price of $1.19.
The reason for the stock’s recent surge is likely the announcement of the company’s receipt of a patent for the long COVID treatment.
Axcella is up 271% year-to-date, while Novavax is down 24%. For comparison, the S&P 500 returned 16% during the same period.
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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.
