Trading a short squeeze is a popular strategy because the stock price can go beyond real valuation. The way it works is traders borrow a certain stock, they sell it with the hope of buying it back cheaper and returning the stock to the lender. However, when millions of shares are bought back, it’s likely to drive the stock price higher, which is how you can profit.
Because the interest for shorted stocks remains, Finbold analyzed the most shorted stocks this year on August 31 and selected the two with the highest potential to soar in the future as the market prepares to head into September.
Novavax (NASDAQ: NVAX)
Novavax is a biotech company that develops and commercializes vaccines to prevent serious diseases. The company has developed a COVID-19 vaccine, and now with the re-emergence of new strains, it could provide a good marketplace for its products.
The company is one of the most shorted stocks at 45.79% of the float, as of August data. In other words, almost 40 million shares are shorted out of 86 million shares floating. If a short squeeze happens, it could be massive.
Morningstar’s equity report has put a fair value of $17.57 per share. That’s 110% above the current market price of $8.36.
Fisker Inc (NYSE: FSR)
Fisker is a California-based electric vehicle manufacturer. For the moment, Fisker sells only one vehicle, the Fisker Ocean, which is an all-electric SUV. More vehicles are being designed and developed, though, like the Ronin sports car and the Alaska lightweight pick-up truck.
The company is one of the top 10 most shorted stocks with 42.57% of the float, as of August data. That’s an increase from 25% a month ago.
Morningstar’s equity report has provided a $9.51 fair value for the FSR stock. With the stock currently trading at $5.79, that’s a 64% difference.
Novavax is down 14% year to date, while Fisker is down 15% during the same period. The S&P 500’s 18% return has outperformed both so far.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.