What a wild week it has been. The markets plunged Wednesday over concerns on the vaccine rollout and Federal Reserve vowing to keep interest rates near zero. And yet, there were still some big winners.
Short squeezing--that is the new trend. Unless of course, you’re a hedge fund manager.
It all started with shares of GameStop (NYSE: GME) surging; Reddit retail investors under the thread "Wallstreetbets" spammed memes and tried to get traders to buy the failing consumer's electronics and gaming retailers-- and it worked.
The approach is of course aimed to hurt hedge funds and Wall Street professionals who are short on the stock. Short squeezing works by finding stocks that have been heavily targeted by short-selling, and driving up the price through heavy buying and option calls. GameStop was the first short squeeze target, but there were many more to follow.
But now, meanwhile, investment firms Robinhood and Webull have blocked purchases of some shorted firms including GameStop and Nokia (NYSE: NOK) to satisfy the billionaire Wall Streeters. As a result, some shorted stocks have fallen, causing outrage on social media from the general public and even from polar poltiical opposites like Ted Cruz and AOC.
Of course, most of those short targeted stocks didn't gain on fundamentals and are likely not worth their current valuations. That said, it’s not every day that Wall Street witnesses a movement like this. Will Robinhood and WeBull reverse their decisions after the outrage? Will retail investors flock elsewhere to trading platforms such as Fidelity or Vanguard? Will these short stocks surge again on Friday, and or next week?
Below are five stocks you should consider buying in advance:
1. Gogo Inc. (Nasdaq: GOGO)
Now might be a good time to buy Gogo, whose stock has only gained 20% since mid-January now. The company, which provides entertainment services to the aviation space, has struggled during the pandemic with its net loss more than tripling in the quarter ending in September.
According to Benzinga, roughly 44% of its float is short. As of midday Thursday, shares in Gogo were trading 4% lower from Wednesday's close.
2. Tootsie Roll (NYSE: TR)
The more than century-long candy maker had also been a part of the short squeeze rally. Up until today, Tootsie had experienced a sugar rush in the last week with shares up 45%, as of Wednesday.
Meanwhile, its third-quarter sales plunged 14% to $156.96 million; Tootsie attributed the decline to “public health guidelines” designed to curb the spread of Covid-19.
The Chicago-based company has around 45% of its float short. Intraday, shares of Tootsie were trading down 12%
3. Tanger Outlet Centers (NYSE: SKT)
Since the beginning of 2021, shares of Tanger Outlet have jumped 60%. But like others on this list, the stock fell on Thursday after gaining earlier this week.
While it's been a struggle for Tanger during the pandemic, the company appears to be experiencing recovery while maintaining a solid balance sheet. Tanger, which invests in shopping centers that contain outlet stores, said earlier this month that its fourth-quarter traffic hit around 90% of the levels it experienced in the “prior year.” As of Jan. 6, Tanger had more than $680 million in liquidity.
Intraday Thursday, the stock in Tanger was down 9% from Wednesday close.
4. American Airlines (Nasdaq: AAL)
American Airlines was one of the few shorted stocks that were in the green Thursday. While it reported a narrower loss than expected, Cowen analyst Helane Becker said the gains were likely attributed to the overnight short-squeeze by Reddit users.
It’s unclear if Robinhood or Webull will crack down on more stocks but now might be a solid buying opportunity for investors before the stock surges again. By midday, the stock was trading at $18.36 per share, 11% higher from Wednesday’s close but still much lower than its high of $21.77 it hit earlier today.
The company has built up a cargo full debt but is hoping to turn normal at some point this year. I have been bearish in the past, but this stock might be worth buying now just to see where it flys in the short term.
5. AMC (NYSE: AMC)
In fact, this week in particular has been a strong one for AMC. On Monday, AMC said it secured enough financing (more than $400 million) to stay afloat “deep into 2021.”
A bet on the world’s largest movie chain comes with plenty of risks but this stock might have the biggest short-term upside, based on the huge gains we’ve seen this week.