Contrarian Investor? Get Ready to Profit With These 3 Short-Squeeze Stocks
The stock market has been on a downswing throughout the fall. High interest rates, inflation, and geopolitical tensions are among the factors weighing on investor sentiment.
With the downturn, bears are getting feisty. Some pundits are calling for big declines and predicting major chaos in 2024. Not surprisingly, short sellers are getting aggressive on many positions, seeing the possibility of outsized profits if the economy tanks.
However, these naysayers may be getting too confident. They could easily get burned if conditions start to improve heading into next year. In particular, let’s examine these three short squeeze stocks, all with short interest above 10% of the float.
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PBF Energy (PBF)
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PBF Energy (NYSE:PBF) is an independent refining firm. Its refineries produce gasoline and other transportation fuels, heating oil, and other petroleum byproducts such as asphalt.
Refineries may seem like an unattractive business as the world moves toward electric vehicles. Counterintuitively, refineries have become more valuable in recent years. The U.S. hasn’t built a new large-scale refinery since the 1970s. Meanwhile, demand for transportation fuels has increased. When supply is fixed and demand rises, profit margins increase.
PBF stock is incredibly cheap on a valuation basis, as our Josh Enomoto recently demonstrated. However, shares are merely flat over the past year, and trade at an eye-popping 3.5x forward P/E ratio. Traders are worried about falling refining margins at the moment, which is a valid concern. But if the economic downturn isn’t as bad as expected, highly-shorted PBF stock could be set to spike higher.
Credit Acceptance (CACC)
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Credit Acceptance (NASDAQ:CACC) is a specialty lending company focused on the automotive market.
Specifically, it provides funding for four million people to finance their vehicles, and has an operating track record of 50 years now. The firm offers solutions for both individuals seeking a car loan and dealerships that need a partner to finance their vehicle sales.
Credit Acceptance has a long track record of both operations and stock market success. CACC stock traded for about $11 per share in 2003 and now goes for more than $400 per share.
Despite that, short sellers love to hound the firm. It has been the target of short seller reports from the likes of Citron Research and Hedgeye over the years.
It’s true that auto lending can have complicated financing and lots of credit risk with many of the clients. And the car market boom has turned to a bust over the past year, calling into question the resale value of much of the collateral involved in auto loans.
Regardless, Credit Acceptance’s track record speaks for itself. And, shares go for just 11 times forward earnings. This could set the stock up for a major short squeeze if the current auto market downturn isn’t as bad as currently feared.
JetBlue Airways (JBLU)
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JetBlue Airways (NASDAQ:JBLU) is one of America’s mid-tier airlines that has built a strong niche for itself. By delivering high customer service, it focuses on key leisure and business markets with higher yields rather than serving the entire country.
However, given the changes in the airline landscape since the pandemic, JetBlue needs to be flexible. Thus, it’s now aiming to merge with ultra-low cost carrier Spirit Airways (NYSE:SAVE).
JetBlue notes that the big four American carriers control 80% of ticket revenue. They stress that smaller firms like JetBlue and Spirit need to unite in order to compete and offer a meaningful alternative to fliers. Anti-trust regulators disagree and have sued to try to block the deal.
Traders have taken a dim view of the situation, sending JBLU stock down about 50% from its recent highs. Weakening sentiment for the airline industry as a whole certainly hasn’t helped matters. But the stock could be poised for a major turnaround if the merger is approved or airlines end up having a strong holiday travel season.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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