In this article, we discuss the 10 most shorted stocks hedge funds are buying. If you want to skip our detailed analysis of these stocks, go directly to the 5 Most Shorted Stocks Hedge Funds Are Buying.
There are several indicators that the United States economy is slowly returning back to normal after the COVID-19 disruptions but several factors continue to hamper the pace of this change. Credit rating agency Moody’s and news platform CNN have recently collaborated to create the Back-to-Normal Index to track this phenomenon. The index stood at 94% at the beginning of this week, down from 93% from the previous week. Dante DeAntonio, a senior economist at Moody’s, believes that supply chain issues and hiring struggles are behind the change.
Other economic indicators are also worrying. A poll conducted by The Wall Street Journal reveals that market experts predict that the Gross Domestic Product (GDP) growth of the US will be cut to 3.1% annualized in the third quarter, the slowest in more than a year-and-a-half and down from 6.7% annualized through March and June this year. Investors who are eager to get rid of some risky stocks in their portfolios to prepare ahead should check out some of the most shorted stocks on the market right now.
Some of the most shorted right now include ZoomInfo Technologies Inc. (NASDAQ:ZI), Wayfair Inc. (NYSE:W), and Confluent, Inc. (NASDAQ:CFLT), among others discussed in detail below. However, some hedge funds have been loading up on these stocks, taking a calculated risk on the firms for whom the economic headwinds seem only near-term.
Short interest on a stock typically represents the number of shares that have been sold short but not yet been closed out. Generally, a short interest ratio of more than 20% compared to the float is considered very high since it indicates significant negative sentiment around the company.
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Our Methodology
Here is our list of the 10 most shorted stocks hedge funds are buying. These were picked keeping in mind the float shorted. Only those companies that have more than 20 hedge funds with stakes in them were selected.
The list is compiled according to the number of hedge funds having stakes in each firm. The hedge fund sentiment around each stock was gauged using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Most Shorted Stocks Hedge Funds Are Buying
10. Skillz Inc. (NYSE:SKLZ)
Number of Hedge Fund Holders: 20
Float Shorted: 24.61%
Skillz Inc. (NYSE:SKLZ) recently announced that it had hired Vatsal Bhardwaj, the former director of game technology for Amazon Web Services, to the chief product officer position. The appointment is part of a plan to expand into the mobile gaming industry. The stock has lost 44% in value over the past six months alone.
Canaccord analyst Michael Graham had lowered the price target on Skillz Inc. (NYSE:SKLZ) stock to $23 from $30 in early August while keeping a Buy rating, noting that the user base of the firm was not expanding and was a cause of concern for investors.
At the end of the second quarter of 2021, 20 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in Skillz Inc. (NYSE:SKLZ), down from 26 in the previous quarter worth $672 million.
Just like ZoomInfo Technologies Inc. (NASDAQ:ZI), Wayfair Inc. (NYSE:W), and Confluent, Inc. (NASDAQ:CFLT), Skillz Inc. (NYSE:SKLZ) is one of the stocks feeling the heat of an economic downturn.
9. Bed Bath & Beyond Inc. (NASDAQ:BBBY)
Number of Hedge Fund Holders: 21
Float Shorted: 27.41%
Bed Bath & Beyond Inc. (NASDAQ:BBBY) stock is down over 51% over the past three months as the post-pandemic spending boom winds up and home furnishings sales weaken across the United States. The company missed market expectations on earnings per share and revenue in the second quarter results, posted in late September, by $0.48 and $70 million respectively. The guidance numbers for the third quarter also fell short of predictions, prompting analysts to view the stock with more caution.
On October 14, investment advisory Morgan Stanley downgraded Bed Bath & Beyond Inc. (NASDAQ:BBBY) stock to Underweight from Equal Weight with a price target of $12. Analyst Simeon Gutman issued the rating downgrade.
At the end of the second quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $363 million in Bed Bath & Beyond Inc. (NASDAQ:BBBY), down from 23 in the previous quarter worth $314 million.
Alongside ZoomInfo Technologies Inc. (NASDAQ:ZI), Wayfair Inc. (NYSE:W), and Confluent, Inc. (NASDAQ:CFLT), Bed Bath & Beyond Inc. (NASDAQ:BBBY) is one of the stocks with high short interest.
In its Q2 2021 investor letter, Heartland Advisors, an asset management firm, highlighted a few stocks and Bed Bath & Beyond Inc. (NASDAQ:BBBY) was one of them. Here is what the fund said:
“The gyrations of story stocks touted on message boards have resulted in distortions in the market but on rare occasions have also swept up a few compelling opportunities. Bed Bath & Beyond (BBBY), a national retailer of home goods, babywear and health and beauty products, is one example.
Even before Bed Bath & Beyond made headlines earlier this year when day traders drove the price of shares up in an effort to squeeze short sellers, the company had caught our attention for the results its new management team was delivering since taking over in late 2019.
CEO Mark Tritton, who came to BBBY after a successful tenure at Target, quickly got to work installing new corporate leadership, closing underperforming stores, selling non-core businesses to firm up the balance sheet, and implementing retail best practices across the company. He also worked to improve store efficiency and revamped the company’s online presence.
The moves by Tritton made an impact. In its 2020 fiscal year, BBBY closed 144 under-performing stores, grew new digital customers by 95%, reduced debt by $1 billion, and returned $375 million of capital to shareholders. Despite the meaningful improvements, and the strong performance year-to-date, shares of the retailer are trading at just .35X sales and less than 5X estimated 2022 earnings before interest, taxes, depreciation, and amortization—roughly half of the multiple commanded by peer Williams- Sonoma Inc.
At current valuations, we view BBBY as offering attractive upside as recent improvements gain traction. It appears we’re not alone as executives have also been buying shares in recent months.”
8. AMC Entertainment Holdings, Inc. (NYSE:AMC)
Number of Hedge Fund Holders: 21
Float Shorted: 17.80%
AMC Entertainment Holdings, Inc. (NYSE:AMC) is one of the stocks that have had a very eventful year so far. The company has been involved in multiple short squeeze attempts and the short interest on the stock remains high. Even though movie audiences are returning to theatres after the COVID-19 scares last year, the overall state of the cinema industry does not fill investors with confidence because of the advance of the streaming industry. In early September, Macquarie analyst Chad Beynon had downgraded the stock to Underperform from Neutral.
AMC Entertainment Holdings, Inc. (NYSE:AMC) has been trying to stay relevant amid all the chaos, recently announcing that it will be accepting dogecoin and crypto payments at theatres across the country in a bid to attract the youth to cinemas.
At the end of the second quarter of 2021, 21 hedge funds in the database of Insider Monkey held stakes worth $404 million in AMC Entertainment Holdings, Inc. (NYSE:AMC), up from 19 in the preceding quarter worth $34 million.
In addition to ZoomInfo Technologies Inc. (NASDAQ:ZI), Wayfair Inc. (NYSE:W), and Confluent, Inc. (NASDAQ:CFLT), AMC Entertainment Holdings, Inc. (NYSE:AMC) is one of the stocks not doing very well at the market.
In its Q4 2020 investor letter, Mittleman Investment Management LLC, an asset management firm, highlighted a few stocks and AMC Entertainment Holdings, Inc. (NYSE:AMC) was one of them. Here is what the fund said:
“AMC Entertainment (AMC) was our only material loser in Q4, dropping from $4.71 to $2.12 (-55%). I planned on discussing here why it was worth at least the $10 per share that my recently reduced estimate of fair value claimed, but since then AMC raised more cash against their UK holdings and then the stock took off due to speculative players from reddit.com getting involved, so we sold it all around $14 during the last week of Jan. 2021. This was a modest profit for most clients, but a loss for some others, depending on when the account began, so check your statements to see where you came out. And yes, I recognize it as being a dose of good luck, which I heartily accept from the universe as it seemed somewhat lacking in the portfolio of late. After the sale of AMC in late January 2021, our exposure to the movie theater business is now exclusively in Canada via Cineplex, which has a 75% market share and much less leverage on its balance sheet.”
7. Gogo Inc. (NASDAQ:GOGO)
Number of Hedge Fund Holders: 22
Float Shorted: 32.38%
Gogo Inc. (NASDAQ:GOGO) operates in the wireless communications sector. The company is facing increased competition for in-flight wireless communication services and even though it presently holds 80% of the market share in this regard, Morgan Stanley has predicted that this will come down to around 50% within the next two years. On October 6, the investment bank downgraded the stock to Underweight from Equal Weight with a price target of $14 citing valuation free cash flow pressures.
Gogo Inc. (NASDAQ:GOGO) missed market expectations on earnings per share in the second quarter by $0.57. The revenue over the period was $82 million, down 14% compared to the revenue between March and June last year.
At the end of the second quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $180 million in Gogo Inc. (NASDAQ:GOGO), up from 18 the preceding quarter worth $172 million.
ZoomInfo Technologies Inc. (NASDAQ:ZI), Wayfair Inc. (NYSE:W), and Confluent, Inc. (NASDAQ:CFLT) are some of the stocks with high short interest right now, just like Gogo Inc. (NASDAQ:GOGO).
6. GoodRx Holdings, Inc. (NASDAQ:GDRX)
Number of Hedge Fund Holders: 28
Float Shorted: 26.30%
Even though the short interest on the stock is high, GoodRx Holdings, Inc. (NASDAQ:GDRX) has soared in value by 35% over the past three months. The firm provides tools and information for savings on prescription drugs. It is based in California. In the second quarter, the firm beat market expectations on earnings per share and revenue, raising guidance for the third quarter. Analysts are also positive on the stock.
Deutsche Bank analyst Lloyd Walmsley maintained a Hold rating on GoodRx Holdings, Inc. (NASDAQ:GDRX) stock in early October but raised the price target to $47 from $37. In August, Raymond James had upgraded the stock to Outperform from Market Perform.
Among the hedge funds being tracked by Insider Monkey, California-based investment firm Silver Lake Partners is a leading shareholder in GoodRx Holdings, Inc. (NASDAQ:GDRX) with 3.5 million shares worth more than $127 million.
In its Q2 2021 investor letter, Saga Partners, an asset management firm, highlighted a few stocks and GoodRx Holdings, Inc. (NASDAQ:GDRX) was one of them. Here is what the fund said:
“The Saga Portfolio first bought GoodRx at the end of 2020 and has added to it throughout 2021. As it has become a larger position in the Portfolio, it makes sense to explain the investment thesis in more detail.
For those who don’t care to understand the prescription drug value chain, feel free to skip over this section. While few readers may really care about the fairly complicated prescription drug value chain, it is important to review in order to understand the role that GoodRx plays within the ecosystem. This is my best attempt in trying to explain it in a few paragraphs.
Like many other parts of the U.S. healthcare system, prescription drugs suffer from complex and non-transparent pricing with access largely controlled by health plan payers. The majority of people in the U.S. have insurance provided by either their employer or a government program such as Medicare or Medicaid. Consumers largely rely on third parties to determine which drugs are covered by their health plan, and therefore which drugs may or may not be affordable.
Pharmacy benefit managers (PBMs) play a significant role and sit in the middle of three different parties. They are the intermediary between health insurers, pharmacies, and drug manufacturers. Health insurers hire PBMs to manage prescription drug plans for their covered population. PBMs negotiate on behalf of the health insurer with pharmacies. Pharmacies enter pricing contracts with PBMs in an effort to drive more demand to the store…” (Click here to see the full text)
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Disclosure. None. 10 Most Shorted Stocks Hedge Funds Are Buying is originally published on Insider Monkey.
