Stock market investors are regularly monitoring highly shorted stocks, as the potential for an abrupt surge looms large.
Keeping an eye on stocks with a significant percentage of their float shorted has become a common strategy, as these situations often lead to a phenomenon known as a ‘short squeeze.’
This occurs when traders who have heavily shorted a stock rush to cover their positions by buying back shares, thereby rapidly increasing the demand for the asset and pushing its price higher, forcing more and more short sellers to buy back.
Picks for you
Today, we delve into the prospects of two popular stocks that are significantly shorted and examine their potential for a dramatic turnaround.
Novavax (NASDAQ: NVAX)
Novavax is a US biotechnology company based in Gaithersburg, Maryland. The firm specializes in developing vaccines aimed at treating severe infectious diseases such as influenza respiratory syncytial virus, and Ebola, among others.
According to September 27 data, NVAX is currently one of the most shorted US stocks, with more than 50.8% of its float shorted. This pressure has contributed to NVAX losing more than 30% year-to-date, currently trading at $7.11 per share.
However, recent analysts’ projections for NVAX are not as bearish. Notably, 5 analysts that offered 12-month price forecasts for Novavax set an average price target of $20.60 for the stock. That is around 190% higher than the stock’s current price.
In addition, out of the 6 analysts that rated the stock in the past 3 months, 3 see NVAX as a ‘Strong Buy.’ Meanwhile, two rated it as a ‘Sell’ and a ‘Strong Sell,’ and 1 as ‘Neutral.’
If the biotech company’s shares surge close to analysts’ 12-month predictions, it would pave the way for a substantial short squeeze.
Last month, Novavax posted a surprise Q2 profit and revenue, exceeding Wall Street’s estimates as the company prepares to roll out a new Covid-19 vaccine.
ProKidney (NASDAQ: PROK)
Another biotech firm, ProKidney (NASDAQ: PROK) is a late clinical-stage company pioneering a cell therapy candidate developed to revolutionize the treatment landscape for chronic kidney disease (CKD).
According to the company, the treatment has “the potential to preserve kidney function and change patients’ lives.”
When it comes to ProKidney’s stock market footprint, it is a considerably shorted stock, with over 38% of its float shorted, MarketWatch data shows. Similar to NVAX, PROK also saw a steep downturn in 2023, losing over 37% of its value so far.
But despite its underperformance this year, analysts remain bullish on the innovative biotech firm.
To be more specific, the consensus 12-month price target for PROK currently stands at $14.8 on TradingView, based on forecasts of 5 analysts. That price level is more than 242% higher than ProKidney’s current market price of $4.32.
Furthermore, 5 analysts who provided their thoughts on PROK in the past 3 months gave it an average rating of a ‘Strong Buy,’ based on 4 ‘Buy’ recommendations and 1 ‘Hold.’
The company’s share price plummeted significantly since mid-August, although if analysts’ prognostications count for something, a possible rebound in its price could trigger a massive short squeeze, given the high short interest in the stock.
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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.
