In this article, we will discuss the 10 Best Big-Name Stocks to Buy Right Now According to Short Sellers.
In early April 2024, Goldman Sachs Inc.’s data revealed that short selling on individual US-listed stocks was at the highest level in 6 months, and the most targeted sectors were technology, telecom, and media. This increase in short positions was seen after the significant ~9% advance seen in 1Q 2024 for the S&P 500. As per the data, some hedge funds that were using long-short equity strategies have started to fight the rally.
During extreme market volatility, short selling has become pronounced and has drawn significant interest from institutional and retail investors. It has prompted regulatory intervention as new reporting requirements have been issued by the SEC to offer transparency and ensure the availability of short position data.
Recent Trends in Short Selling
In the 2Q 2024, the US and Canadian markets saw an increase of ~$58 billion in short interest or a rise of 5.1% from the previous quarter.
Recently, S3 Partners, a renowned tracker of short-interest data, reported that the sectors that saw the largest increases in short exposure in 2Q 2024 included information technology (a rise of $49.3 billion), communication services (at $11.2 billion), and utilities (a rise of $3.7 billion) from the previous quarter. The sectors that saw the largest decrease in short exposure were the energy and financial sectors, down $12.3 billion and $1.6 billion, respectively.
Earlier in 2024, a significant surge in the leading AI giant resulted in losses of ~$3 billion for the short sellers. Some market experts even described this as an “AI-generated nightmare.”
In global equities, short interest climbed during July 2024, with strong increases seen throughout the Automobile (+13bps), REITs (+11bps), and Consumer Durables (+11bps) sectors, reported S&P Global. On the other hand, the largest decreases were in the Financial Services (-10bps) and Real Estate Management and Development (-4bps) sectors.
Talking about the US equities, the average short interest decreased to 77 basis points during July 2024. Significant increases in short interest were seen throughout REITs (+6 basis points) and the Household and Personal Products (+8 basis points) sectors. Conversely, the largest declines were in the Financial Services (-15 basis points) and the Automobile (-9 basis points) sectors.
Heavily Shorted Stocks Might Not Always Be in Distress, Says S3 Partners
S3 Partners revealed that there is a relatively weak correlation between short positions in certain assets and distress measures. This means that not all heavily shorted stocks are facing difficulties. As per the firm, broader market sentiments and valuation concerns are some of the factors that can drive short interest.
The company believes that shorting an asset can form part of broader strategies or hedging activities not linked to distress. It mentioned that there can be 3 measures of bearishness for stocks —- average analyst ratings (From 1 to 5), Credit default swap (CDS) spreads, and Altman Z-Score.
For example, the US Dollar had a low short position of ~1.32%. However, it had a high CDS spread of 1000 basis points. This indicates high perceived distress on the currency even though there is minimal short interest. This can be because of factors such as currency market dynamics or investor sentiments.
With that, let’s take a look at the best big name stocks to buy now according to short sellers.
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Our methodology
To list 10 Best Big-Name Stocks to Buy Right Now According to Short Sellers, we used the Finviz screener to filter out the big names. Next, we narrowed our list by choosing the ones having low short interest. The stocks are ranked in descending order of their short interest. We also mentioned the hedge fund sentiment for each stock, which was sourced from Insider Monkey’s database of over 900 elite money managers, as of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Big-Name Stocks to Buy Right Now According to Short Sellers
10) Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 108
Short % of Shares Outstanding (August 15, 2024): 2.98%
Advanced Micro Devices, Inc. (NASDAQ:AMD) produces semiconductor products and devices. Its product categories include microprocessors, embedded microprocessors, chipsets, graphics, video, and multimedia products. It also supplies these products to third-party foundries and provides assembling, testing, and packaging services.
Advanced Micro Devices, Inc. (NASDAQ:AMD) announced the definitive agreement to acquire privately held ZT Systems for $4.9 billion. This is expected to act as a growth enabler for Advanced Micro Devices, Inc. (NASDAQ:AMD) over the long term as this will provide the company with expertise in artificial intelligence infrastructure systems and services.
The PC market is now recovering. International Data Corporation (IDC) mentioned that the PC market saw a 3% YoY increase in the second quarter. This was after an increase of 1.5% in the first quarter. This recovery should get stronger in the future as a result of the growing buzz around artificial intelligence (AI)-enabled PCs. Therefore, this growth is expected to help Advanced Micro Devices, Inc. (NASDAQ:AMD)’s client processor business.
Next, Advanced Micro Devices, Inc. (NASDAQ:AMD) is expected to benefit from inorganic growth as it has made some promising acquisitions, which should strengthen its AI prospects. For example, in August, the company wrapped up the acquisition of Silo AI, a deal which was valued at $665 million. The company now aims to offer end-to-end AI solutions to customers due to Silo AI’s expertise in developing large language models (LLMs).
Wells Fargo & Company increased its price objective on shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) from $190.00 to $205.00, giving it an “Overweight” rating on 11th July.
Meridian Funds, managed by ArrowMark Partners, released its fourth quarter 2023 investor letter. Here is what the fund said:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
9) Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
Short % of Shares Outstanding (August 15, 2024): 1.54%
Costco Wholesale Corporation (NASDAQ:COST) is a membership warehouse club. It sells all kinds of food, automotive supplies, toys, hardware, sporting goods, and apparel, among other goods.
Costco Wholesale Corporation (NASDAQ:COST) is expected to have strong revenue and earnings for the upcoming years due to its cost advantage, scale, and membership program. The company provides fewer products as compared to other retailers, simplifying supply chain logistics and procurement. Costco Wholesale Corporation (NASDAQ:COST)’s attractive product assortment and low prices should continue to act as growth enablers. These advantages can also help in driving strong traffic through its warehouses.
Apart from these facts, the company’s vast scale and merchandising strategy provide a significant cost advantage in the crowded retail environment. Recently, Costco Wholesale Corporation (NASDAQ:COST) announced its first membership fee hike in nearly 7 years. This price rise has now become effective. The change should result in a significant earnings boost for the company. It also revealed that this will impact ~52 million paid memberships.
The company released 3Q 2024 financial results. Its net sales for the quarter went up by 9.1% to $57.39 billion from $52.60 billion last year. Net sales were positively impacted by approximately 0.5% to 1.0% from the shift of the fiscal calendar, due to the fifty-third week last year. Overall, its results were characterized by the expansion of its digital initiatives and the success of its curated marketplace, Costco Next, together with a healthy increase in membership fee income.
Robert W. Baird upped their target price on the shares of Costco Wholesale Corporation (NASDAQ:COST) from $850.00 to $975.00, giving it an “Outperform” rating on 11th July. As per Insider Monkey’s 2Q 2024 database, 71 hedge funds reported owning stakes in the company.
ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
8) Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 107
Short % of Shares Outstanding (August 15, 2024): 1.18%
Adobe Inc. (NASDAQ:ADBE) operates as a diversified software company worldwide. It operates via 3 segments: Digital Media, Digital Experience, and Publishing and Advertising.
The company’s long-term visibility for increased revenue stems from its competitive advantages, such as switching costs and network effects. Its digital media segment benefits from significant switching costs. Critical products such as Creative Cloud and Document Cloud are integral to users’ workflows. This makes it difficult for users to switch to other solutions.
Adobe Inc. (NASDAQ:ADBE)’s shift to a subscription model tends to eliminate piracy and makes revenue recurring, apart from removing the increased upfront price for customers. This subscription-based model (SaaS) will help in achieving a steady and predictable revenue stream. Adobe Inc. (NASDAQ:ADBE) continues to extend its empire in the creative world from content creation to marketing services. This is happening through the expansion of the digital experience segment. This segment is expected to drive growth in upcoming years.
The company released its 2Q 2024 financial results, achieving record revenue of $5.31 billion as a result of strong growth across Creative Cloud, Document Cloud, and Experience Cloud. For 3Q 2024, it expects total revenue in the range of $5.33 billion to $5.38 billion and earnings per share of between $3.45 to $3.50.
Adobe Inc. (NASDAQ:ADBE) highlighted the positive reception of the generative AI models, like the Firefly family, and Acrobat AI Assistant. These were the critical drivers in enhancing creativity and productivity for users.
Mizuho reissued a “Buy” rating on the shares of Adobe Inc. (NASDAQ:ADBE), giving the price target of $640.00 on 7th June.
Polen Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
