In this article, we discuss the 14 worst 52-week high stocks to buy according to short sellers.
The start of the US Federal Reserve cutting cycle ushers a new era in the investment world after one of the longest bull runs. Major US Indices are at record highs, well supported by an economy that has shrugged off the adverse effects of high interest rates. A resilient economy has been the catalyst behind companies delivering better-than-expected results, helping shore up sentiments in the equity markets. With the S&P 500 at record highs, so are stocks trading close to 52-week highs on valuations that are getting out of hand.
READ ALSO: 12 Best Forever Stocks To Buy Now and 12 Best Long-Term Stocks to Buy According To Warren Buffett.
The first interest rate cut comes amid growing concern about a slowing US economy depicted by weakness in the labor market, slowing manufacturing, and weak consumer purchasing power. The impact of high interest rates for a long time is already being felt on consumer purchasing power taking a hit to the detriment of small and medium businesses.
Likewise, Ray Dalio the founder of Bridgewater Associates believes the Fed faces a tough balancing act as it commences the cutting cycle. In an interview with CNBC, Dalio reiterated that the Fed must find a way to keep interest rates high to prevent inflation edging higher and keeping them low enough to offer support to an economy that is facing an enormous amount of debt.
While there were fears that a steeper interest rate cut could be the worst outcome for stocks on fueling concerns about the economy’s health; that has not been the case. The upward momentum in the equity markets appears to have gathered steam depicted by the S&P 500 at all time highs after the cut.
Disappointing economic data in recent months has been the catalyst behind BTIG analyst Jonathan Krinsky reiterating that the risk-reward in the near term is now skewed to the downside regardless of what the Federal Reserve does. The sentiments come amid concerns that the Fed might have waited too long before cutting.
According to Krinsky, consumer staple stocks remain the most susceptible to significant downside risk. That’s because it is one of the sectors that has felt the full brunt of high interest rates taking a toll on consumer purchasing power.
On the other hand, the real estate sector, especially home-building stocks, could be big winners on the Fed cutting by 50 basis points. In the three months leading up to the rate cut cycle, homebuilders stocks outperformed the S&P 500, and building materials have also seen success. Over the last quarter, shares of homebuilders have risen by 26%, while building materials have seen a 13% increase, in contrast to the S&P 500, which has only gone up by 2%.
Shaniel Ramjee, who co-leads the multi-asset division at Pictet Asset Management’s London branch, mentioned that his group has been purchasing shares of U.S. financial firms in the past few weeks in preparation for expected interest rate reductions.
The analyst is confident that the financial sector will gain from a steepening yield curve due to increased support from lower interest rates for consumers and greater economic activity when interest rates are reduced.
Stocks trading near the 52-week highs could face pressure as valuation scrutiny gathers momentum. Uncertainty over the upcoming US presidential election could also weigh significantly on overvalued stocks trading close to their 52-week highs. Consequently, now could be the best time to pay attention to stocks that are trading near their 52-week highs and are moderately shorted.
Source: Pexels
Our Methodology
We used the Finviz stock screener to scan for companies that are trading near their 52-week highs and have high short interest. We identified 25 stocks that fit our criteria and then picked the 14 that were the most popular among elite hedge funds. The stocks are ranked in ascending order, based on their short interest.
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).
14 Worst 52-Week High Stocks to Buy According to Short Sellers
14. Tecnoglass Inc. (NYSE:TGLS)
52 Week Range: $28.21 – $68.95
Current Share Price: $66.99
Short % of Shares Outstanding: 7.59%
Number of Hedge Funds holding stakes as of Q2 2024: 16
Tecnoglass Inc. (NYSE:TGLS) is a basic materials company that manufactures, supplies, and installs architectural glass, windows, and associated aluminum and vinyl products for commercial and residential construction markets. It provides low emissivity, laminated/thermo-laminated, thermo-acoustic, tempered, silk-screened, curved, and digital print glass products.
Tecnoglass Inc. (NYSE:TGLS) has declared a quarterly dividend of $0.11 per share for the third quarter of 2024, demonstrating the firm’s commitment to return value to shareholders backed by a solid balance sheet. The firm has also disclosed its highest single-family residential revenues of $95.7 million and overall income of $219.7 million during the second quarter of 2024.
The firm anticipates full-year earnings to range from $860 million to $910 million, marking a 6% growth rate in organic terms at the middle of the range. These recent achievements underscore Tecnoglass Inc. (NYSE:TGLS) ‘s economic stability and potential for expansion.
Nevertheless, upward momentum on growth depends on interest rates coming down. The high interest rate environment has been a big headwind affecting consumer purchasing power, therefore raising serious concerns about the company’s long-term prospects.
High mortgage rates attributed to the high interest rates also hinder the possibility of many houses going on sale or being quite expensive. With the stock trading near its all-time highs amid key headwinds of high interest and mortgage rates, short interest rates stand at 7.59%.
Tecnoglass Inc. (NYSE:TGLS) was part of 16 hedge funds’ portfolios in the second quarter of 2024, down from 18 in the previous quarter. As of June 30, 2024, Owls Nest Partners is the top shareholder in the company and has a position worth $38.96 million.
13. VIZIO Holding Corp. (NYSE:VZIO)
52 Week Range: $4.82 – $11.30
Current Share Price: $11.20
Short % of Shares Outstanding: 10.68%
Number of Hedge Funds holding stakes as of Q2 2024: 23
VIZIO Holding Corp. (NYSE:VZIO) is a technology company that provides smart televisions, sound bars, and accessories. Famous for its range of consumer electronics, especially TVs and sound systems, it is based in Irvine, California. The firm is known for providing top-notch items that appeal to a wide range of customers, a goal that has been a priority under Wang’s guidance.
While the stock has powered to 52-week highs, it is in dire need of a catalyst if the upward momentum is to persist. VIZIO Holding Corp. (NYSE:VZIO) has always been the largest TV brand sold in the giant retail store. It has also occupied the second spot as the largest seller of flat-screen TV screens in the US. The Walmart deal amounted to $11.50 a share.
Additionally, the company has delivered disappointing results that do not align with the stock trading near the 52-week high to justify further buys. Consequently, the short interest on the stock has remained at a high of 10.68%.
Nevertheless, the company delivered solid second-quarter results as it bounced back to profitability after the Q1 2024 slowdown. Revenue in the quarter was up 11% year over year to $437.3 million, as gross profit increased 16% to $99.5 million. Nevertheless, the company’s profitability dropped to $0.2 million compared to the $1.9 million delivered last year in the same quarter.
With profitability increasingly becoming a problem, VIZIO Holding Corp. (NYSE:VZIO) is one of the worst 52-week high stocks to buy, according to short sellers, while trading at a premium with a price-to-earnings multiple of 70.
As per Insider Monkey’s second-quarter database, 23 hedge funds were bullish on VIZIO Holding Corp. (NYSE:VZIO), an increase from 22 funds in the preceding quarter. Matthew Halbower’s Pentwater Capital Management held the largest position in the company, with 6.80 million shares worth $73.44 million.