7 Short-Squeeze Stocks for Contrarians to Consider
While it’s always risky to go against the masses, certain short-squeeze stocks for contrarians to consider may perform surprisingly well. Invariably, even the collective sometimes gets things wrong. Certainly, if everyone bets on the same horse, the subsequent individual reward (if any) would be significantly limited. And that’s part of the reason why going against the grain can be profitable.
As well, the “stare down” effect does wonders for short-squeeze stocks. Essentially, for the bears to initiate their “negative” positions, they must first borrow the target equities. On the other hand, the contrarians only need to acquire the stocks in question. Therefore, the losses are whatever the bulls paid for the position.
In contrast, short traders owe back the shares they borrowed. And that translates to theoretically unlimited liability if they keep rising higher. Further, some short-squeeze stocks may be due for a comeback anyways because of particular upside catalysts. Therefore, investors should keep a close eye on the below speculative opportunities.
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Warby Parker (WRBY)
According to data from Benzinga, discount eyeglass and contact lens retailer Warby Parker (NYSE:WRBY) represents one of the most bearish of short-squeeze stocks. Currently, WRBY’s short interest stands at a lofty 53.91%. Also, the days to cover currently stand at 12.1. As a rule of thumb, double-digit figures in both categories typically indicate a heavily targeted security by the bears.
Admittedly, Warby Parker also symbolizes one of the short-squeeze stocks where the underlying financials don’t help matters. At the moment, its profit margins sit in negative territory. Adding insult to injury, the market prices WRBY at almost 7 times its book value, which is extremely overvalued for the industry. As well, WRBY lost almost 57% of its equity value in the trailing year.
Nevertheless, Warby Parker enjoys long-term positive fundamentals. According to a paper published by the American Academy of Ophthalmology, global myopia trends are only rising. Cynically, this dynamic affords WRBY an upside catalyst that the bears might be ignoring.
Presently, Benzinga rates online pet food retailer Chewy (NYSE:CHWY) as one of the short-squeeze stocks for contrarians to consider. In terms of short interest, CHWY hit slightly over 39%, which is a staggeringly high figure. To be fair, the 6.3 days to cover isn’t the biggest number I’ve seen among short-squeeze candidates. Still, in combination with the short interest, it makes for a juicy “reverse” trade.
Before moving any further, I must point out that Gurufocus.com suggests CHWY might be a possible value trap. If so, the bears might win this one. However, it’s also right to point out that Chewy enjoys a decent balance sheet. For instance, its cash-to-debt ratio stands at 1.4 times, better than 69% of the industry. Also, its Altman Z-Score of over 7 reflects a very low bankruptcy risk.
Finally, Americans really love their furry friends. In 2021, the American Pet Products Association revealed that the total pet industry racked up $123.6 billion in sales. Therefore, CHWY enjoys the potential to surprise as one of the short-squeeze stocks for contrarians to consider.
Sonic Automotive (SAH)
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Thanks to the severe pressures impacting the consumer economy, it’s only natural that Sonic Automotive (NYSE:SAH) became one of the most bearish of short-squeeze stocks. A combination of high-profile layoffs and soaring interest rates means that high-ticket items lack attractiveness. Certainly, you wouldn’t want to buy a car in this environment. It’s probably the worst time to do so.
Therefore, the bearish stats don’t shock me. Right now, SAH features a short interest of 37% and days to cover 13.1. Ordinarily, these numbers suggest that the bears truly believe the target enterprise will stumble. However, SAH could be due for a comeback because of one critical fundamental catalyst: buying cars now will be more by force than by choice.
As The Wall Street Journal pointed out, the average age of vehicles on U.S. roadways hit a record 12.2 years. That means, when these cars break down, the repair bill may be too onerous to make sense. Therefore, people will likely buy a new (or new-ish) car. That should make SAH one of the short-squeeze stocks for contrarians to consider.
Earlier in the post-pandemic new normal, electric vehicle-related investments benefitted significantly. In particular, public charging plays like EVgo (NASDAQ:EVGO) commanded a compelling narrative. Basically, while a majority of residential units feature a garage or carport, not all do. Therefore, if the EV transition reaches 100%, public charging will be a necessity. You can take that to the bank.
Unfortunately, the cost-prohibitive nature of EVs pressured several individual brands. With the EV manufacturers struggling, of course, the public charging players likewise stumbled. Logically, then, the bears piled against EVGO. Presently, the company’s short interest stands at 33%, while it pings 11 days to cover. That’s not a great way to start the new year.
To be fair, EVgo represents an aspirational business – and its financials show. As well, the market prices EVGO at nearly 8 times sales, which is wildly overvalued. However, analysts still like EVGO, rating it a consensus moderate buy. For some, that might be enough to give it a shot among short-squeeze stocks for contrarians to consider.
Camping World (CWH)
When Camping World (NYSE:CWH) hit Benzinga’s radar as one of the most bearish short-squeeze stocks, this was no plot twist. Sure, the company’s specialty in recreational vehicles offered substantial relevance during the worst of the coronavirus pandemic. Back then, fears of SARS-CoV-2 rang high. However, people still wanted to enjoy their vacations. RVs and their inherent ability to social distance against strangers won the day.
Unfortunately for CWH stakeholders, fears of Covid-19 faded dramatically since then. Now, people just want to move on with their lives. In that respect, not everyone will want to fight the bearish tape. Presently, CWH’s short interest stands at 26.9% and it features 9.6 days to cover.
Nevertheless, for the adventurous type, intrigues. Financially, the company enjoys strong gross margins (affording it pricing flexibility) and an above-sector-median return on equity. The latter stat reflects Camping World’s superior capacity to convert equity financing into profits. As well, the market prices CWH at only 6.5 times forward earnings, favorably below 76% of the competition. Thus, it’s one of the short-squeeze stocks for contrarians to consider.
Lindblad Expeditions (LIND)
Source: Shine Nucha / Shutterstock
As a provider of unique experiences, Lindblad Expeditions (NASDAQ:LIND) began a recovery process in late 2020, extending to early 2022. With people eager to get out of the house following two years of lockdowns and mitigation measures, LIND made sense. However, with skyrocketing inflation and geopolitical flashpoints, LIND made less sense. In the trailing year, shares tumbled over 45%.
Of course, the bears moved in. Currently, LIND’s short interest stands at 24% and it features 19.7 days to cover. Again, with the consumer economy struggling, Lindblad seems an obvious enterprise to short. However, the company targets wealthy customers, not the folks searching for the best economy-class airline tickets.
There’s nothing wrong with that, by the way. I’m just spitting out some facts, as the kids like to say. To be sure, the financials for Lindblad are quite messy. Nevertheless, analysts rate it a consensus moderate buy with an upside price target implying nearly 46% returns. Also, hedge funds – or smart money – appreciate Lindblad’s potential. Therefore, LIND justifies inclusion among short-squeeze stocks for contrarians to consider.
Big Lots (BIG)
Source: Vera Petrunina/ShutterStock.com
Per Benzinga’s list at the time of writing, big-box retailer Big Lots (NYSE:BIG) attracted significant bearish attention. On the other hand, if you’re a glass-half-full type, you could view BIG as one of the best short-squeeze stocks. Let’s look at the core numbers. Right now, BIG’s short interest stands at 52.5% and features 7.6 days to cover.
On the chart, BIG lost almost 60% of its equity value, reflecting significant concerns with the consumer economy. Regarding the financials, circumstances don’t appear auspicious for the bulls. Unfortunately, profitability margins sank into negative territory. As well, its balance sheet could use some work. Not shockingly, Gurufocus.com warns that Big Lots is a possible value trap.
Despite the ugly, hedge funds love BIG stock, with sentiment rated as “very positive” per TipRanks. Fundamentally, buying in bulk allows consumers to combat high prices. And even under deflationary conditions, people may still buy in bulk for discounts on important household goods. It’s risky but it could be one of the short-squeeze stocks for contrarians to consider.
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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