In this article, we will talk about the 7 best high short-interest stocks to invest in.
What’s Going On in China?
China’s housing market, once a booming sector, has experienced a significant downturn in recent years. To revitalize the market, the government recently implemented a series of policy changes aimed at stimulating demand. These changes include easing home-buying restrictions in major cities like Guangzhou, Shenzhen, and Shanghai.
The relaxation of these restrictions has had a positive impact on the stock market. Investors, encouraged by the government’s efforts, have been pouring money into Chinese stocks, particularly those related to the real estate sector. This surge in investment has led to a significant increase in stock prices. The CSI 300 index saw its most significant weekly gain since 2008, rising over 15% in late September 2024
While all of this activity has had a positive short-term impact, economists believe that more measures are needed to address China’s weak domestic demand. The housing market is still grappling with concerns about developer solvency and the overall economic outlook. The government’s efforts to address these issues will be crucial for the long-term recovery of the housing market and the broader economy.
On September 27, Jeremy Siegel, Wharton School professor of finance, joined CNBC’s ‘Squawk on the Street’ to discuss how much of a game changer recent news from China is. He shared his insights on the potential implications of global market changes, particularly in light of discussions surrounding Japan and China.
Siegel agreed with hedge fund manager David Tepper’s views but noted a divergence regarding Japan’s long-term appreciation and its effects on exports and interest rates. He highlighted that, despite concerns, the recent performance of the Japanese yen and Nikkei, showing gains of 2% each, indicates that there may still be opportunities to capitalize on these markets.
He emphasized the positive developments in China, suggesting that buying into a market with a price-to-earnings ratio of around 10 can be advantageous, especially considering the current P/E ratio for China is approximately 12 to 13. He pointed out that this valuation is relatively low compared to other markets, with Brazil being one of the few markets with an even lower ratio. Siegel referenced Warren Buffett’s concept of “margin of safety” when investing in low P/E markets, reinforcing his belief in the potential for gains in China despite some bearish sentiments.
When asked about the US market, Siegel indicated that it appears full at present. He praised the Fed’s new trajectory and suggested that if they implement a quarter-point rate increase at each meeting, they could reach a target rate of around 3.5% by mid-2025. He argued that current inflation data supports this approach, although he expressed skepticism about reaching the Fed’s dot plot target of 2.9% without a recession.
Siegel believes that while inflation remains a concern, the Fed does not need to take drastic measures such as a 50 basis point hike. Instead, he advocates for a more gradual approach to rate increases, which would help stabilize the economy without causing significant harm. He noted that if the market anticipates these adjustments, the outlook for the remainder of the year could improve.
Overall, his analysis suggests that while opportunities exist in international markets like Japan and China, investors should remain cautious about US equities due to their current valuations. His perspective encourages a balanced approach to investing in various global markets while keeping an eye on macroeconomic indicators and central bank policies.
China’s recent stimulus measures have encouraged renewed investor interest in Chinese stocks. Short-term traders have been consistently purchasing stocks, and hedge funds have increased their allocations to Chinese equities. While the stimulus is positive, underlying economic challenges could affect investment strategies, including short-selling. In that context, we’re here with a list of the 7 best high short-interest stocks to invest in.
Methodology
To compile our list, we used the Finviz stock screener to find companies with a short interest between 10% and 25%. We then selected 10 stocks that were the most shorted but at the same time popular among elite hedge funds and that analysts were bullish on. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers. The stocks are ranked in ascending order of their short interest.
Why are we interested in 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).
7 Best High Short Interest Stocks To Invest In
7. CAVA Group Inc. (NYSE:CAVA)
Short % of Float As of September 13: 15.13%
Market Capitalization as of September 30: $14.15 billion
Number of Hedge Fund Holders: 33
CAVA Group Inc. (NYSE:CAVA) operates a category-defining Mediterranean fast-casual restaurant brand operating in ~25 states in the US. Its specialty is offering a variety of healthy and flavorful options, including salads, bowls, and pita sandwiches, with a commitment to high-quality ingredients and exceptional customer service that has contributed to its rapid growth and success.
The company continued its rapid growth in the US, adding 18 new restaurants during Q2, bringing the total restaurant count to 341. It’s also on track to open an additional 54-57 restaurants by the end of 2024. This expansion, combined with strong same-store sales, led to a 35% year-over-year increase in overall revenue. Same-restaurant sales increased by 14.4%, driven by a 9.5% increase in guest traffic and a 4.9% increase in menu price and product mix.
Its expansion into Chicago has been a major success, with 3 locations now open. The recent launch of grilled steak has been a hit with customers and is driving sales. The social media campaign for the launch generated over 8.6 million social impressions and over 300 million PR impressions.
On September 18, Kind Snacks founder Daniel Lubetzky joined the judging panel on Shark Tank. In an interview, he discussed his new role, his views on the food industry, and his investment in CAVA Group Inc. (NYSE:CAVA). Despite the challenges posed by inflation, Lubetzky remains optimistic about this company’s future due to its strong product and growth potential. CAVA Group Inc.’s (NYSE:CAVA) strategic focus on customer loyalty, operational efficiency, and team development positions it for continued growth and success.
Next Century Growth Small Cap Strategy stated the following regarding CAVA Group, Inc. (NYSE:CAVA) in its first quarter 2024 investor letter:
“CAVA Group, Inc. (NYSE:CAVA) is a fast casual restaurant chain serving authentic Mediterranean cuisine, featuring customizable bowls and pitas. CAVA currently owns and operates >300 stores, and the company targets a 15% plus new store growth rate. The intermediate goal is to have 1,000 stores by 2032 with plenty of opportunity to grow beyond that level. The company already delivers solid restaurant level margins >20% and they believe 3-5% same store sales growth is achievable over time. As the business matures, they should be able to leverage G&A expense which should lead to strong earnings growth over many years.”
6. Aptiv (NYSE:APTV)
Short % of Float As of September 13: 15.61%
Market Capitalization as of September 30: $19.73 billion
Number of Hedge Fund Holders: 38
Aptiv (NYSE:APTV) is an Irish-American automotive technology supplier at the forefront of the automotive industry that specializes in developing safer, greener, and more connected technologies. Offerings include advanced safety systems, electrification components, and autonomous driving solutions.
The company is benefiting from the growing demand for electric and connected vehicles because of its advanced driver assistance systems, like the Gen 6 ADAS platform. Despite a 2.87% year-over-year decrease in revenue, Aptiv (NYSE:APTV) reported record-high profits of $1.16 billion in Q2 2024. This made a revenue of $5.05 billion for the quarter. The earnings per share beat estimates by $0.16 and came out to be $1.58.
Key customers like a European truck and SUV manufacturer, a global EV maker, and two Chinese OEMs, reduced their production volumes, leading to lower revenue. Signal Power revenue declined 3%, primarily due to lower production volumes at select customers.
Revenue grew 16% in China, offsetting negative impacts from other regions. The company’s ASUX segment achieved record quarterly revenue and earnings, driven by growth in active safety products (up 15% year-over-year).
On August 13, the company expanded its manufacturing facility in Chennai, India. The plant will produce advanced cockpit control systems, increasing production capacity and supplying high-quality components to Indian and global automakers. This expansion solidifies its position as a key automotive partner in India and drives innovation in the fast-growing market.
With the expanded plant, it can produce advanced safety and user experience features, such as radars, cameras, and next-generation electronic control units, helping the company stay competitive in the growing market for software-defined vehicles. Such factors collectively set Aptiv (NYSE:APTV) up for growth potential in the industry.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Aptiv PLC (NYSE:APTV) in its first quarter 2024 investor letter:
“At the beginning of the year, we sold our shares in Aptiv PLC (NYSE:APTV), which supplies automotive electronic technology for safety and entertainment systems. The company had expected significant growth from its EV components, though that segment saw much slower growth recently. With no line of sight for a rebound, we exited our position.”