If you can’t beat them, join them. Today’s recommendation is apolitical, unbiased, and objective. This is a moment in time when a social-media-driven group of investors has decided to target high short interest stocks as a way to make money. TPA believes there is a moderately safe and targeted approach for clients to benefit from this (probably short term) pattern.
TPA scanned the Russell 3000 Index (98% of publicly traded stocks) for high short interest stocks using short interest as a percent of float. The table below is the first page of this scan. Then TPA identified high short interest stocks that have not moved up considerably in the past month. Finally, we examined the chart to determine if there were an attractive pattern and entry point that would offer significant upside performance with a measured amount of downside risk. TPA is using a basket to eliminate some single-stock risk.
The 5 stocks in the basket are below. The 5 stocks are only up 4.91% on average in the past month. They have an average short interest of 30.1% of float and 13.8 days to cover, which puts the shorts in a dangerous position if there are a lot of buyers. Only REV and IFF trade more than 1 million shares per day.
TPA provides charts for all 5 stocks below. All of the stocks are at or near positive inflection points.
TPA’s target is +50% and its stop is -5%. This presents an attractive 10-1 return to risk trade-off.