In this article, we discuss the 10 most shorted stocks to watch in June. If you want to skip our analysis of these stocks, go directly to the 5 Most Shorted Stocks to Watch in June.
Reports indicate that short-sellers are increasing their bets on the SPDR S&P 500 Exchange-Traded Fund Trust at the quickest pace in a year. Other investors are picking up options contracts at an all-time high, which would pay out if the recent bond and stock market decline worsened.
The mounting geopolitical tensions come at a time when financial markets have already been pressured by rising inflation and uncertainty over the pace at which the Federal Reserve will raise interest rates. Meanwhile, earnings growth is projected to slow down from its blistering speed in 2021, when profits were compared to their depressed levels during the initial stages of Covid-19. The S&P 500 Index is down 21% YTD, while the tech-heavy Nasdaq Composite is down 30% YTD as of June 14. Moreover, the benchmark borrowing costs in the bond market surpassed 2% for the first time since mid-2019, earlier in February. According to estimates from technology and data analytics firm S3 Partners, short sellers increased their positions against the SPDR S&P 500 ETF Trust by $8.6 billion in February. This sum would be the highest since early March 2021.
Talking to the Wall Street Journal earlier this year, ACM Funds’ chief investment officer, Jordan Kahn, said that his fund has been reducing stock positions through one of its approaches while increasing short-bets against exchange-traded funds that follow the overall market trend. Mr. Kahn said he became concerned at the end of 2021 when he noticed that individual equities were falling in value, but major indices remained stable. He looks at the situation as a “red flag” and stated that “we think that the most likely scenario is that those big stocks that haven’t had as big a correction yet will probably at some point play catch-up to the downside.”
As per S3 Partners, 79% of capital invested in short positions made a profit in January. Losses in software and services companies resulted in the largest gain across industries, with a 19.2% return for shorts. Investors are hedging against a number of large tech firms that have driven the market upward in recent years, anticipating a reverse in 2022. According to S3 Partners, investors added $1.3 billion to their short positions on Tesla, Inc. (NASDAQ:TSLA) and over $844 million to their bets against NVIDIA Corporation (NASDAQ:NVDA) earlier this year. MicroStrategy Incorporated (NASDAQ:MSTR) is also amongst the most shorted stocks to watch in June.
By MicroStrategy – MicroStrategy, CC BY 4.0, https://commons.wikimedia.org/w/index.php?curid=64257908
Our Methodology
The stocks have been picked according to the percentage float shorted as of May 30, 2022. Business fundamentals, growth prospects, and analyst ratings have been discussed for each stock. Furthermore, the hedge fund sentiment has been determined through an analysis of 900 elite funds tracked by Insider Monkey at the end of Q1 2022.
Most Shorted Stocks to Watch in June
10. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 48
Float Shorted: 44.77%
Stock Price as of June 14: $21.03
Carvana Co. (NYSE:CVNA) is a Tempe, Arizona-based used car trader. Carvana Co. (NYSE:CVNA) became one of the youngest companies to be a part of the Fortune 500 in 2021. In a short period of eight years, Carvana Co. (NYSE:CVNA) has become the second-biggest online trader of used cars.
The stock has come under pressure recently due to an uncertain macroeconomic outlook and the logistical issues faced by the company. In its Q1 2022 results, Carvana Co. (NYSE:CVNA) experienced a 14% volumetric growth to 105,000 units. However, gross profit shrunk by 12% YoY to $298 million due to the higher cost of buying used cars. This meant that the average gross profit per unit (GPU) fell from $4,537 to $2,833. Meanwhile, Carvana Co. (NYSE:CVNA) had guided that it anticipated GPU declining to $4,000.
The stock fell to a 52-week low on June 13 as concerns related to high leverage and a weak demand outlook raised concerns amongst investors and analysts. Carvana Co. (NYSE:CVNA) financed the $2.2 billion acquisition of ADESA from KAR Capital by issuing $1.6 billion worth of bonds to Apollo Global Management and obtaining the remaining funds from the secondary markets at a very high yield. On June 13, Daniel Imbro at Stephens slashed the price target on Carvana Co. (NYSE:CVNA) from $100 to $38 due to these concerns and maintained an Equal Weight rating on the stock.
In its Q1 2022 investor letter, Saga Partners shared its insights on Carvana Co. (NYSE:CVNA). Here’s what the investment management firm said:
“I first wrote about Carvana in this 2019 write-up. I initially explained Carvana’s business, superior value proposition compared to the traditional dealership model, attractive unit economics, and how they were uniquely positioned to win the large market opportunity.
Since then, Carvana has by far exceeded even my most optimistic initial expectations. While the company did benefit following COVID in the sense that customers’ willingness to buy and sell cars through an online car dealer accelerated, the operating environment over the last two years has been very challenging. Carvana executed exceedingly well considering the shifting customer demand in what is a logistically intensive operation and what has been a tight inventory environment due to supply chain issues restricting new vehicle production.
Shares have come under pressure following their first quarter results, which reflected larger than expected losses. The quarter was negatively impacted by a combination of COVID-related logistical issues in their network that started towards the end of the fourth quarter as Omicron cases spread. Employee call off rates related to Omicron reached an unprecedented 30% that led to higher costs and supply chain bottlenecks. As less inventory was available due to these problems, it led to less selection and longer delivery times, lowering customer conversion rates.
Additionally, interest rates increased at a historically fast rate during the first quarter which negatively impacted financing gross profits. Carvana originates loans for customers and then sells them to investors at a later date. If interest rates move materially between loan origination and ultimately selling those loans, it can impact the margin Carvana earns on underwriting those loans…” (Click here to see the full text)
Out of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 48 funds held a stake in Carvana Co. (NYSE:CVNA).
9. EVgo, Inc. (NASDAQ:EVGO)
Number of Hedge Fund Holders: 20
Float Shorted: 29.91%
Stock Price as of June 14: $8.02
EVgo, Inc. (NASDAQ:EVGO) has the biggest electric vehicle (EV) fast-charging network in the US. The Los Angeles, California-based company is betting on the EV boom through its more than 850 fast-charging stations spread across 30 states.
In a note issued to investors on May 12, Maheep Mandloi at Credit Suisse upgraded EVgo, Inc. (NASDAQ:EVGO) stock from a Neutral to an Outperform rating with a target price of $14. The target price provides a potential upside of over 74% from the last closing price. The analyst highlighted that EVgo, Inc. (NASDAQ:EVGO) stock is trading at an attractive valuation following the significant dip since the start of the year. Furthermore, the analyst sees multiple tailwinds for the firm due to potential incentives from the distribution of federal infrastructure funds. However, the weak Q1 2022 results have pressurized the stock as the company failed to surpass revenue estimates because of seasonality and the omicron variant impacting throughput. EVgo, Inc. (NASDAQ:EVGO) posted revenue of $7.70 million, missing the consensus estimates by $1.22 million.
As of Q1 2022, 20 funds reported owning a stake in EVgo, Inc. (NASDAQ:EVGO).
8. Veru Inc. (NASDAQ:VERU)
Number of Hedge Fund Holders: 9
Float Shorted: 32.07%
Stock Price as of June 14: $12.62
Veru Inc. (NASDAQ:VERU) is a Miami, Florida-based biotech company focused on developing treatments for breast cancer and prostate cancer.
Traders who have taken a short position in Veru Inc. (NASDAQ:VERU) stock see the company failing to receive an emergency use authorization for sabizabulin for high-risk COVID-19 patients. Veru Inc. (NASDAQ:VERU) is also exploring the use of sabizabulin for breast and prostate cancer.
The company finished Q1 2022 with a cash balance of $112 million and expects the balance to be sufficient to finance its operations for the next 12 months. If Veru Inc. (NASDAQ:VERU) receives approval from the FDA, it could generate healthy sales to fund its operations further. The use of sabizabulin decreased the mortality rate from 45% to 20% in high-risk COVID-19 patients as compared to the placebo group.
Veru Inc. (NASDAQ:VERU) was held by 9 hedge funds at the end of Q1 2022.
7. Lemonade, Inc. (NYSE:LMND)
Number of Hedge Fund Holders: 17
Float Shorted: 32.47%
Stock Price as of June 14: $16.84
Lemonade, Inc. (NYSE:LMND) is a New York-based technologically-driven insurance provider that deals with homeowners, pets, cars, and term life insurance.
Since the start of the year, Lemonade, Inc. (NYSE:LMND) stock has lost nearly half of its value. In a note issued to investors on May 11, Jason Helfstein at Oppenheimer lowered the price target on Lemonade, Inc. (NYSE:LMND) from $45 to $30 due to a decline in comparative valuations of the tech-insurance industry and a weaker outlook for the near-term loss ratio. The analyst maintained an Overweight rating on the stock despite the company missing Q1 2022 revenue estimates. It must be highlighted that Lemonade, Inc. (NYSE:LMND) reported growth in premium-per-customer due to the positive impact of bundling.
Overall, 17 hedge funds reported owning a stake in Lemonade, Inc. (NYSE:LMND) at the end of Q1 2022.
6. Vertex Energy, Inc. (NYSE:VTNR)
Number of Hedge Fund Holders: 21
Float Shorted: 27.02%
Stock Price as of June 14: $13.7
Vertex Energy, Inc. (NYSE:VTNR) is a Houston, Texas-based production and distribution company involved in alternative and conventional fuel sources. The company is invested in the recycling of motor oil and other petroleum products.
In a note issued on June 8, Michael Hoffman at Stifel increased the price target on Vertex Energy, Inc. (NYSE:VTNR) from $14 to $20 and reiterated a Buy rating following the company’s participation in Stifel’s cross-sector insight (CSI) conference. The analyst updated his forecasts and target price to reflect the impact of the project upgrade and the near-term economics of traditional refining techniques. Vertex Energy, Inc. (NYSE:VTNR) has expanded its refining capacity following the acquisition of Alabama-based Mobile Refinery from Shell. The company is to make the facility operational by Q1 2023, following the conversion of the hydrocracking unit to produce renewable diesel fuel.
Despite these positive developments, conservative investors are wary of Vertex Energy, Inc. (NYSE:VTNR) stock as it is vulnerable to fluctuations. Commodity prices significantly impact the company, and they are currently volatile due to the Russia-Ukraine conflict. The stock is likely to be considered expensive during 2022 as analysts do not see the positive impact of the Mobile refinery coming into play until the first quarter of 2023.
Vertex Energy, Inc. (NYSE:VTNR) was held by 21 hedge funds at the end of Q1 2022.
In addition to Vertex Energy, Inc. (NYSE:VTNR), investors also have short positions in stocks such as Tesla, Inc. (NASDAQ:TSLA), NVIDIA Corporation (NASDAQ:NVDA), and MicroStrategy Incorporated (NASDAQ:MSTR).
Click to continue reading and see the 5 Most Shorted Stocks to Watch in June.
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Disclose. None. 10 Most Shorted Stocks to Watch in June is originally published on Insider Monkey.
