Buy these 26 heavily shorted stocks as retail traders trigger wild rallies in Wall Street's least-liked names, Wells Fargo says

  • GameStop and other heavily shorted stocks have made enormous gains recently. 
  • Two elements fueling GameStop’s rise were huge short bets against the stock and a turnaround case for its business.
  • Wells Fargo’s Christopher Harvey published a list of buy-rated stocks that Wall Street is shorting.
  • Visit Business Insider’s homepage for more stories.

If you’ve been away from the stock market a week or so, here’s what you missed: There are no stocks anymore. They’re called stonks now, and they always go up.

Alright, you missed more than that. But that’s one takeaway from the mega-rallies in heavily shorted stocks like GameStop, Bed Bath & Beyond, and AMC Entertainment. There are also lessons about understanding risk, social media, market dynamics, the technical aspects of stocks, and the rules of the road for giant, average, and small-money investors.

The list of possible lessons and opinions about GameStop is endless. But one thing investors might take away from all of this is a new appreciation of how big short bets against a stock can go wrong. 

In a recent note to clients, Wells Fargo senior equity analyst Christopher Harvey points out a surprising dynamic that’s emerging: Heavily-shorted S&P 500 stocks are rising as investors close out short positions, but the shorting of smaller companies is increasing after a furious rally in those stocks.

“Securities with short interest >20% of float (135 total) rose 12.2% week over week on average,” Harvey said Wednesday, adding that average short interest among S&P 500 stocks is at historic lows. “Short Interest on the Russell 2000 ETF (IWM) is rising amid the frenzy as hedging is increasing.”

Two major elements of GameStop’s story that contributed to its recent rise might be repeated elsewhere. One is that some investors really believed the stock was going rise for reasons that had nothing to do Reddit or memes. There was a legitimate, if unpopular, bull case for the stock.

Another is that it was shorted beyond belief, as people who bet against the stock had “sold” more shares of GameStop than actually existed. When the stock started to skyrocket, they were forced to buy the stock at escalating prices to end their money-losing bets, which only made the stock more expensive.

With that in mind, Harvey pulled together a list of the most-shorted S&P 500 stocks. None have 140% short interest like GameStop did, but they all have significant short interest combined with some real causes for optimism.

Wells Fargo’s analysts have “Buy” ratings on the 26 stocks below, and they are listed from lowest to highest based on the percentage of their shares that are being shorted.

26. Northern Oil & Gas

Ticker: NOG

Sector: Energy

Market cap: $436 million

Short interest as a percentage of share float: 15.1%

Source: Wells Fargo

25. RH

Ticker: RH

Sector: Consumer discretionary

Market cap: $9.3 billion

Short interest as a percentage of share float: 15.4%

Source: Wells Fargo

 

24. Editas Medicine

Ticker: EDIT

Sector: Healthcare

Market cap: $4.0 billion

Short interest as a percentage of share float: 15.6%

Source: Wells Fargo

23. Range Resources

Ticker: RRC

Sector: Energy

Market cap: $2.4 billion

Short interest as a percentage of share float: 15.8%

Source: Wells Fargo

22. Canada Goose

Ticker: GOOS

Sector: Consumer discretionary

Market cap: $3.9 billion

Short interest as a percentage of share float: 15.8%

Source: Wells Fargo

21. The RealReal

Ticker: REAL

Sector: Consumer discretionary

Market cap: $2.0 billion

Short interest as a percentage of share float: 15.9%

Source: Wells Fargo

20. Arcturus Therapeutics

Ticker: ARCT

Sector: Healthcare

Market cap: $1.7 billion

Short interest as a percentage of share float: 16.6%

Source: Wells Fargo

19. ZoomInfo Technologies

Ticker: ZI

Sector: Communication services

Market cap: $8.1 billion

Short interest as a percentage of share float: 16.7%

Source: Wells Fargo

18. Magnolia Oil & Gas

Ticker: MGY

Sector: Energy

Market cap: $2.3 billion

Short interest as a percentage of share float: 16.8%

Source: Wells Fargo

17. Penumbra

Ticker: PEN

Sector: Healthcare

Market cap: $9.9 billion

Short interest as a percentage of share float: 16.8%

Source: Wells Fargo

16. Iron Mountain

Ticker: IRM

Sector: Real estate

Market cap: $10.7 billion

Short interest as a percentage of share float: 17.4%

Source: Wells Fargo

15. Sirius XM Holdings

Ticker: SIRI

Sector: Communication services

Market cap: $29.3 billion

Short interest as a percentage of share float: 18.7%

Source: Wells Fargo

14. Global Blood Therapeutics

Ticker: GBT

Sector: Healthcare

Market cap: $3.2 billion

Short interest as a percentage of share float: 18.9%

Source: Wells Fargo

13. Chewy

Ticker: CHWY

Sector: Consumer discretionary

Market cap: $43.0 billion

Short interest as a percentage of share float: 19.7%

Source: Wells Fargo

12. Intellia Therapeutics

Ticker: NTLA

Sector: Healthcare

Market cap: $3.4 billion

Short interest as a percentage of share float: 19.9%

Source: Wells Fargo

11. Axonics Modulation Technologies

Ticker: AXNX

Sector: Healthcare

Market cap: $2.2 billion

Short interest as a percentage of share float: 20.0%

Source: Wells Fargo

10. International Flavors & Fragrances

Ticker: IFF

Sector: Materials

Market cap: $11.9 billion

Short interest as a percentage of share float: 20.3%

Source: Wells Fargo

9. Flexion Therapeutics

Ticker: FLXN

Sector: Healthcare

Market cap: $612 million

Short interest as a percentage of share float: 21.6%

Source: Wells Fargo

8. Medallia

Ticker: MDLA

Sector: Information technology

Market cap: $7.2 billion

Short interest as a percentage of share float: 22.7%

Source: Wells Fargo

7. ANGI Homeservices

Ticker: ANGI

Sector: Communication services

Market cap: $7.6 billion

Short interest as a percentage of share float: 24.3%

Source: Wells Fargo

6. Carvana

Ticker: CVNA

Sector: Consumer discretionary

Market cap: $16.9 billion

Short interest as a percentage of share float: 25.8%

Source: Wells Fargo

5. Cheesecake Factory

Ticker: CAKE

Sector: Consumer discretionary

Market cap: $2.3 billion

Short interest as a percentage of share float: 25.8%

Source: Wells Fargo

4. Albertsons

Ticker: ACI

Sector: Consumer staples

Market cap: $9.5 billion

Short interest as a percentage of share float: 26.0%

Source: Wells Fargo

3. Discovery

Ticker: DISCA

Sector: Communication services

Market cap: $22.3 billion

Short interest as a percentage of share float: 35.2%

Source: Wells Fargo

2. Academy Sports & Outdoors

Ticker: ASO

Sector: Consumer discretionary

Market cap: $2.0 billion

Short interest as a percentage of share float: 36.4%

Source: Wells Fargo

1. Root

Ticker: ROOT

Sector: Financials

Market cap: $5.5 billion

Short interest as a percentage of share float: 44.2%

Source: Wells Fargo

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