The beaten-down stock market has created an opportunity for contrarian investors in short-squeeze stocks.
Essentially, bearish traders must borrow the underlying securities which they are pessimistic about. However, bullish traders en masse can deliberately bid up heavily shorted names, forcing the bears to buy back borrowed equities. Experts refer to the resulting upside panic as a short squeeze.
Last week, I covered short-squeeze stocks that were due for stunning returns. Now, I want to concentrate on securities that saw the biggest change in bearish sentiment. Like a seasoned surfer, you want to feel where the next big wave might materialize, positioning yourself accordingly. In similar fashion, the sharply rising negativity in these names indicates something might be brewing.
However, we’re talking about early warning signals to get speculators positioned appropriately. Here are short-squeeze stocks to put on your must-watch list.
E-Home Household Service
Blue Water Vaccines
Stronghold Digital Mining
E-Home Household Service (EJH)
Source: shutterstock.com/Digital Genetics
According to data from Benzinga, E-Home Household Service (NASDAQ:EJH) saw the biggest rise in bearish sentiment recently. The increase came out to a staggering 2,560%, suggesting the pessimists sense a robust “negative” opportunity. At time of writing, the current short interest is 13.15%, while the previous reading was only 0.24%.
If you haven’t heard of this company, you’re not alone. E-Home Household Service calls Fuzhou, China home. It specializes in appliance repair and maintenance services. However, as the New York Times pointed out in July of this year, “High unemployment, a housing market in crisis and sluggish consumer spending during lockdowns are putting pressure on Beijing.”
Therefore, it’s not surprising that EJH ranks among the top short-squeeze stocks. But does this mean you should buy EJH shares, hoping to actualize contrarian profits? Frankly, this trade is extremely risky, in part because EJH’s short interest ratio is only half a day. So, if you do participate, it’s all about quick in, quick out.
Ayala Pharmaceuticals (AYLA)
Ranking second in terms of the biggest change in bearish sentiment, Ayala Pharmaceuticals (NASDAQ:AYLA) saw a 2,459% increase in its short interest. Currently, Ayala’s short interest is 11.6%. Previously, it pinged a subterranean 0.56%. Keep in mind that generally, a short interest reading of 10% or higher represents the demarcation point for bearishness.
According to its website, Ayala focuses on “developing targeted therapies for people with rare tumors and aggressive cancers in whom the Notch pathway is activated.” According to Nature.com, the Notch “is the receptor in a highly conserved signalling pathway that is crucial in development and implicated in malignant transformation.”
While the main narrative for Ayala sparks empathy – addressing clinically underserved cancers – the underlying equity rates as modestly overvalued. Unfortunately, based on its trailing-12-month revenue, Ayala shows declining growth.
Still, contrarian traders do funny things. In the last month, AYLA is up 13%. Nevertheless, it remains one of the riskier short-squeeze stocks to consider.
Blue Water Vaccines (BWV)
As you might have guessed, Blue Water Vaccines (NASDAQ:BWV) ranks third among potential short-squeeze stocks to put on your radar. Though its bearish delta isn’t as extreme as the other two, BWV still holds its own. The short interest change came out to 355.5%. At time of writing, Blue Water’s short interest is 32.9%. Previously, it reached 5%.
I’ll save you the time right now and tell you that out of the short-squeeze stocks on this list, BWV holds the highest short interest at 32.9%. About the only reasonable deduction you can make from this setup is that investors are substantially pessimistic about Blue Water.
Since launching its initial public offering earlier this year, BWV is down about 96%. In addition, during the company’s disclosure for the first quarter, it suffered a loss of 34 cents per share. As well, Blue Water only had $18.6 million cash on hand.
However, there may be reason for optimism. The company specializes in advanced platforms to address infectious diseases. With this department featuring renewed interest, BWV might make for wild short-term speculation.
Enveric Biosciences (ENVB)
Source: Gorodenkoff / Shutterstock.com
Coming in fourth place among potential short-squeeze stocks, Enveric Biosciences (NASDAQ:ENVB) presents an interesting case. Its short interest soared 158.5% from its prior reading. Currently, the company’s short interest is 16.7% while previously, it reached 4.2%.
According to its website, Enveric leverages its discovery engine and intellectual property portfolio “to identify and build the next generation of psychedelic and cannabinoid medicines for the mind and body.” Obviously, both arenas raise intrigue. First, Democrats have pressured President Joe Biden to accelerate cannabis decriminalization efforts. Second, psychedelic drugs present significant potential to address various conditions, particularly mental health concerns.
ResearchAndMarkets.com forecasts that the psychedelic drugs market will expand at a compound annual growth rate of 14.5% between 2021 and 2026. At the end of the forecast period, the sector could command a value of $6.33 billion.
However, the days to cover for ENVB is only 0.1. Therefore, this is one of the short-squeeze stocks to watch but maybe not dive onboard just yet.
Stronghold Digital Mining (SDIG)
Source: Michal Bednarek / Shutterstock
While the other potential short-squeeze stocks may not be intuitively recognizable as contrarian opportunities, Stronghold Digital Mining (NASDAQ:SDIG) has no such problems. As you might have guessed, Stronghold is a cryptocurrency miner.
SDIG registered a big uptick in bearish sentiment, with the change in short interest coming out to nearly 84%. At time of writing, Stronghold’s short interest is 18.2%. In the previous reading, it rated almost 10%.
Two interesting factors exist here. First, it’s easy to understand why so many traders became bearish on Stronghold. With cryptos falling dramatically, SDIG seemingly lacks credibility.
On the other hand, during the trailing month, the total crypto market cap increased roughly 33%. Therefore, contrarians reckon that SDIG may see explosive upside soon. Indeed, in the aforementioned time frame, SDIG stock skyrocketed 75%.
Source: SiljeAO / Shutterstock.com
One of the meme trades, headphone manufacturer Koss (NASDAQ:KOSS) continues to attract interest. I suppose once a candidate for short-squeeze stocks, always a candidate. Anyways, Koss posted a bearish delta of 70.1% against its prior reading, a conspicuously large figure. As I write this, shares feature a short interest of 25.6%, the second-largest figure on this list.
While such a robust figure seemingly supports the contrarian trade, investors must be aware that the days to cover is only 1.8. Therefore, if KOSS bears get squeezed, it won’t take much for them to cover their negative trades. Further, one must wonder how long this narrative can keep delivering the goods.
So far, though, the law of diminishing returns has yet to impact short-squeeze stocks, at least as far as Koss is concerned. Shares are up 42% in the trailing month, suggesting speculators are ready to gamble again. Still, Koss’ sales have been unimpressive against pre-pandemic norms so you ought to be careful with this one.
SIGA Technologies (SIGA)
Perhaps the most immediately relevant name on this list of short-squeeze stocks, SIGA Technologies (NASDAQ:SIGA) is a commercial-stage pharmaceutical firm providing solutions for unmet needs in health security. According to Benzinga, SIGA printed a bearish delta of 58.6% against the prior short interest reading. Currently, this metric reads a hair under 14%. Previously, it was 7.5%.
Now, SIGA basically operates as a pox fighter. Whether it’s smallpox, cowpox or yes, even monkeypox, SIGA develops antiviral treatments. Of course, with the latter virus causing deep concerns around the world, the company has enjoyed a burst of relevance.
Per Yahoo Finance, the bullish implication is that the U.S. government will seek to stockpile SIGA’s monkeypox treatment called TPOXX (tecovirimat). By the way, it’s the only monkeypox treatment available; hence, the contrarian interest in SIGA stock.
Keep in mind that the stock’s days to cover is only 0.3. Still, if the monkeypox outbreak worsens, SIGA could get very interesting.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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