In this article, we discuss the 10 most shorted stocks to watch in July.
According to data shared by S3 Partners, short sellers increased their bets against the US stock market by $20 billion in June 2022. Overall, short interest declined during June on the traders’ assessment that the bottom is near and there are not many opportunities to generate profits. The short interest declined by $73.5 billion MoM in June 2022 to $908.1 billion. In the last two years, shorting tech stocks has caused a loss of $36 billion to investors.
However, the overall bearish sentiment in the US stock market in 2022 has been a win for short-sellers. S3 Partners revealed that short-sellers had recorded a 30% gain this year as of June 30. Technology companies experiencing hyper-growth due to the pandemic took the market to an all-time high in 2021. However, the same has not been true in 2022 as concerns related to inflation and the rising interest rate dented the optimism in the equity markets. According to S3 Partners Research, traders generated a profit of more than $1 billion in June by shorting Tesla, Inc. (NASDAQ:TSLA), Amazon.com, Inc. (NASDAQ:AMZN), and Apple Inc (NASDAQ:AAPL).
Investors sensing a market rebound have begun reducing their short positions. Bob Doll, chief investment officer at Crossmark Global Investments, described the investors’ mindset by stating:
“You always want to short when the market’s at a high and stop shorting when the market’s at the bottom.”
Doll has himself reduced his bets against certain stocks he earlier believed were overpriced. On the contrary, some investors expect the market to continue to decline. As opposed to the shares worth $4.5 billion short in May, short sellers increased their holdings against the SPDR S&P 500 ETF Trust in June by $6.3 billion. Gorr Sahakian, the vice President of Hovnanian Investment Corporation, believes there is still “plenty more downside” to the market, allowing short sellers an opportunity to generate profits.
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Our Methodology
Keeping in mind the bearish sentiment prevailing in the US stock market, let’s discuss the 10 most shorted stocks to watch in July. The stocks have been selected according to the percentage float shorted as of June 14, 2022. We will look into the possible reasons for the high short interest in these stocks along with the business fundamentals.
Insider Monkey’s database of 912 hedge funds as of Q1 2022 was utilized to provide readers with the hedge fund sentiment concerning each stock.
Most Shorted Stocks to Watch in July
10. MicroVision, Inc. (NASDAQ:MVIS)
Float Shorted: 25%
Number of Hedge Fund Holders: 10
MicroVision, Inc. (NASDAQ:MVIS) is a Redmond, Washington-based innovator of lidar sensors, an integral part of autonomous and self-driving vehicles. The company excels in microelectromechanical system (MEMS)-based laser technology that combines algorithms, hardware, machine learning software, and optics together in a proprietary system.
MicroVision, Inc. (NASDAQ:MVIS) has achieved the status of a meme stock on Reddit. The stock price rose from 18 cents in March 2020 to a high of $20.50 in March 2021 on the speculation that the company was a possible takeover target for NVIDIA Corporation (NASDAQ:NVDA). It was believed that NVIDIA was working on an all-in-one product for self-driving vehicles and that the technology and operations of MicroVision, Inc. (NASDAQ:MVIS) would integrate well with NVIDIA. Earlier this year, the stock price increased by 30% following the news that the company had received approval on a patent from the US Patent and Trademark Office.
However, the investors do not appear to be aware of the significance of the patent approval in providing MicroVision, Inc. (NASDAQ:MVIS) with a competitive edge in the long run. As is the case with the majority of meme stocks with weak fundamentals, the stock movement is based on speculation and driven by short covering.
Renaissance Technologies is the leading shareholder in MicroVision, Inc. (NASDAQ:MVIS), with a stake worth over $7 million as of Q1 2022.
9. PMV Pharmaceuticals, Inc. (NASDAQ:PMVP)
Float Shorted: 33.11%
Number of Hedge Fund Holders: 15
PMV Pharmaceuticals, Inc. (NASDAQ:PMVP) is a Cranbury, New Jersey-based precision oncology firm developing small molecule, tumor-agnostic therapies that target p53 mutations, which is a tumor-suppressing protein that can eradicate cancer cells.
On June 9, Jeff Jones at Oppenheimer gave PMV Pharmaceuticals, Inc. (NASDAQ:PMVP) stock an Outperform rating with a target price of $33. The analyst attended PMV Pharmaceuticals, Inc.’s (NASDAQ:PMVP) session during the American Society of Clinical Oncology (ASCO) and the key opinion leader (KOL) event with Dr. Dumbrava from MD Anderson Cancer Center (MDACC). The oncology specialist presented a positive view of the clinical data. Jones believes that advancing the study is justified as it shows single-agent activity in a heavily pretreated patient population.
However, PMV Pharmaceuticals, Inc. (NASDAQ:PMVP) hasn’t generated any revenue over the last year, and the company is not expected to be profitable in the next three years. Furthermore, PMV Pharmaceuticals, Inc.’s (NASDAQ:PMVP) earnings are forecasted to record an average decrease of 9% annually till 2025. These fundamentals make the company an attractive target for short-sellers.
Out of the 15 hedge funds having a stake in PMV Pharmaceuticals, Inc. (NASDAQ:PMVP), OrbiMed Advisors was the leading hedge fund investor in the company as of Q1 2022.
8. Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT)
Float Shorted: 46.45%
Number of Hedge Fund Holders: 17
Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) is a Morristown, New Jersey-based biotech company focused on creating synthetic bile acids for the treatment of chronic liver diseases.
Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) stock has a high short interest as it is in the middle of regulatory approval. On July 7, the company revealed the results of Phase 3 Regenerate trial that is evaluating the effectiveness of obeticholic acid (OCA) in nonalcoholic steatohepatitis, or NASH. According to Joseph Stringer at Needham, the efficacy results were similar to the original results revealed in 2019. The analyst shared this observation in a research note issued to investors on July 8. He gave Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) a Buy rating with a target price of $22.
Stringer has a wait-and-see approach toward Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) stock as it moves forward in the regulatory approval path. Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) has a pre-submission meeting with the US Food and Drug Administration (FDA) later this year and is expected to resubmit a new drug application (NDA). In case the process fails, the short-sellers would be able to earn a healthy profit.
Two Sigma Advisors increased its investment in Intercept Pharmaceuticals, Inc. (NASDAQ:ICPT) by 6% during Q1 2022.
7. Conn’s, Inc. (NASDAQ:CONN)
Float Shorted: 57.71%
Number of Hedge Fund Holders: 9
Conn’s, Inc. (NASDAQ:CONN) is a Woodlands, Texas-based appliances, electronics, furniture, and mattresses store chain with 162 stores across the US.
Conn’s, Inc. (NASDAQ:CONN) is surrounded by significant macroeconomic headwinds due to rising inflation and interest rates. The company is taking several initiatives to counter these issues, such as coming up with an in-house lease-to-own platform and a store-within-store concept by Q3 2022. However, these initiatives would only bring in a temporary spike in Conn’s, Inc. (NASDAQ:CONN) stock price. The true impact on the sales, earnings, and stock price would be reflected two to three quarters later. Due to inflation and the Russia-Ukraine conflict, Conn’s, Inc. (NASDAQ:CONN) is facing rising raw material, fuel, and freight costs along with supply chain disruptions. Although the company is working on originating leases in-house by acquiring a technology platform, rising interest rates are hindering the generation of new leases.
Raging Capital Management shared its outlook on Conn’s, Inc. (NASDAQ:CONN) in its Q3 2021 investor letter. Here’s what was said about the company:
“Conn’s: Anchored by our deep analytic insights into their lending book, we made a living shorting this subprime lender masquerading as a retailer, including profitable trades in 2013, 2014 and 2019. The fact that this parasitic company is still in business speaks to the flaws in the Fed’s easy money policies.”
Out of the 912 hedge funds in Insider Monkey’s database, nine funds held a stake in Conn’s, Inc. (NASDAQ:CONN) as of Q1 2022.
6. Beyond Meat, Inc. (NASDAQ:BYND)
Float Shorted: 44.56%
Number of Hedge Fund Holders: 23
Beyond Meat, Inc. (NASDAQ:BYND) is a Los Angeles, California-based manufacturer of plant-based meat substitute products.
On July 6, Michael Lavery at Piper Sandler gave Beyond Meat, Inc. (NASDAQ:BYND) stock a target price of $12 with an Underweight rating. The target price reflects a potential downside of 62.4% from the latest closing price as of July 11. The analyst highlighted that the retail sales growth is reflecting a decline, and the early success of the recently launched jerky is hiding a significant slowdown in demand for the remaining products on the portfolio. Lavery shared the example of Gardein, another plant-based meat substitute competitor of Beyond Meat, Inc. (NASDAQ:BYND) that received early success following the launch of its jerky offering in June 2020. However, the product failed to gain much traction after the initial boom. Lavery further added that the introduction of jerky would not be very effective in establishing Beyond Meat, Inc. (NASDAQ:BYND) as a plant-based meat substitute in the minds of its consumers.
Beyond Meat, Inc. (NASDAQ:BYND) was discussed in the Q1 2022 investor letter of Horos Asset Management. Here’s what the firm said:
“What about the other asset class that has attracted the most attention from the investment community in recent times? Beyond Meat is the other company whose valuations we did not understand and whose share price has also declined drastically in the last year and a half.”
Beyond Meat, Inc. (NASDAQ:BYND) was held by 23 hedge funds at the end of Q1 2022.
Short-sellers have not only been betting against mid-cap companies like Beyond Meat, Inc. (NASDAQ:BYND) but have also recorded gains against popular big-cap firms like Tesla, Inc. (NASDAQ:TSLA), Amazon.com, Inc. (NASDAQ:AMZN), and Apple Inc (NASDAQ:AAPL) during June 2022.
5. Frontier Group Holdings, Inc. (NASDAQ:ULCC)
Float Shorted: 41.85%
Number of Hedge Fund Holders: 24
Frontier Group Holdings, Inc. (NASDAQ:ULCC) is a Denver, Colorado-based operator of an ultra-low-cost airline.
The company is competing with JetBlue Airways Corporation (NASDAQ:JBLU) for the acquisition of Spirit Airlines, Inc. (NYSE:SAVE). Frontier Group Holdings, Inc. (NASDAQ:ULCC) stock is heavily shorted as investors anticipate the deal with Spirit Airlines to fall through. Furthermore, the ultra-low-cost airline is expected to come under pressure as rising inflation would strain the company’s margins moving forward.
As of July 12, Frontier Group Holdings, Inc. (NASDAQ:ULCC) has requested Spirit Airlines to delay the shareholder voting process regarding the takeover till July 27. If the request is approved, it would be the fourth time that the vote has been delayed in the last few months. Spirit Airlines had reached an agreement with Frontier Group Holdings, Inc. (NASDAQ:ULCC) in February 2022 until JetBlue came forward with its bid in April 2022, starting a bidding war.
Overall, 24 hedge funds held a stake in Frontier Group Holdings, Inc. (NASDAQ:ULCC) as of Q1 2022.
4. Heron Therapeutics, Inc. (NASDAQ:HRTX)
Float Shorted: 50.38%
Number of Hedge Fund Holders: 20
Heron Therapeutics, Inc. (NASDAQ:HRTX) is a San Diego, California-based commercial-stage biotech company producing therapies related to nausea and postsurgical analgesia.
On June 30, Heron Therapeutics, Inc. (NASDAQ:HRTX) initiated a cost reduction plan to address the changing market dynamics. The company will reduce its employee headcount by 34%. The restructuring plan will result in an annual savings of $43 million. The majority of the reduction in the employee headcount will come from the research and development (R&D) department, which is working on the label expansion for Zynrelef.
Zynrelef is a non-opioid painkiller launched by Heron Therapeutics, Inc. (NASDAQ:HRTX) in July 2021. The drug failed to garner sufficient commercial momentum and had a net revenue contribution of lower than even $1 million in the fourth quarter of 2021. Short-sellers are betting on the failure of the drug to become a growth driver for Heron Therapeutics, Inc. (NASDAQ:HRTX) in the future.
D E Shaw increased their holding in Heron Therapeutics, Inc. (NASDAQ:HRTX) by 51% during the first quarter of 2022.
3. Earthstone Energy, Inc. (NYSE:ESTE)
Float Shorted: 46.32%
Number of Hedge Fund Holders: 16
Earthstone Energy, Inc. (NYSE:ESTE) is a Denver, Colorado-based oil and gas exploration and production (E&P) company with a focus on the Midland Basin in the West Texas region and the Eagle Ford Trend in South Texas.
On July 6, Scott Hanold at RBC Capital downgraded Earthstone Energy, Inc. (NYSE:ESTE) stock from an Outperform to a Market Perform rating with a target price of $21. The analyst downgraded the stock due to the company’s relative valuation against the industry benchmark. Hanold highlighted that the management has been able to grow the company’s operations through multiple acquisitions in the last one-and-a-half year. However, some of these acquisitions have still not been fully integrated with the existing operations of Earthstone Energy, Inc. (NYSE:ESTE), which could result in rising costs in the short term during high inflation.
Earthstone Energy, Inc. (NYSE:ESTE) was held by 16 hedge funds at the end of Q1 2022.
2. Revlon, Inc. (NYSE:REV)
Float Shorted: 53.29%
Number of Hedge Fund Holders: 36
Revlon, Inc. (NYSE:REV) is a New York-based cosmetics, fragrance, personal care, and skincare company.
Revlon, Inc. (NYSE:REV) filed for bankruptcy on June 17 as the firm faced supply chain challenges that increased the cost of raw materials. The company had been in business for nearly nine decades but could not survive the impact of inflation and labor shortages. The bankruptcy filing will help Revlon, Inc. (NYSE:REV) in restructuring its capital structure and improve its long-term outlook. Revlon, Inc. (NYSE:REV) has filed for Chapter 11 bankruptcy which means it will not cease operations; instead, it will look for ways to make a comeback. However, the short-sellers are betting against the company’s recovery and think that Revlon, Inc. (NYSE:REV) is on the brink of completely wrapping up its operations.
Here’s what Mittleman Brothers Investment Management said about Revlon, Inc. (NYSE:REV) in its Q1 2022 investor letter:
“For Revlon, given very recent reports by analysts on the extent to which a slowdown in China, higher input costs, and rising interest rates might impact it, MIM provides additional commentary herewith to supplement the update in WWOAW. Revlon’s business is rebounding from the pandemic, despite its stock price continued insistence to the contrary. Sales were +9% in 2021 to $2.08B, adjusted EBITDA +22% to $293M (14.1% EBITDA) margin, gross margin improved to 59.4% from 57.1%. MIM sees the sales rebound accelerating in 2022, estimating +15% to $2.4B (the 2019 pre-pandemic level), and EBITDA at $350M (14.5% EBITDA margin) vs. 12-year average adjusted EBITDA margin of 16.5% (2008-2019) before COVID crushed 2020. The Revlon brand itself performed much better in Q4 2021 (consumption at retail) than the wholesale numbers they reported (Revlon’s sales to its customers, hindered by supply chain disruption) would imply…” (Click here to see the full text)
Of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 36 funds held a stake in Revlon, Inc. (NYSE:REV).
1. Redbox Entertainment Inc. (NASDAQ:RDBX)
Float Shorted: 93.47%
Number of Hedge Fund Holders: 5
Redbox Entertainment Inc. (NASDAQ:RDBX) is an Oakbrook Terrace, Illinois-based company that provides access to a large database of content through digital and physical media.
Redbox Entertainment Inc. (NASDAQ:RDBX) is in the middle of an acquisition by Chicken Soup for the Soul Entertainment, Inc. (NASDAQ:CSSE) for an all-stock deal of $375 million. This includes the assumption of $325 million debt on the books of Redbox Entertainment Inc. (NASDAQ:RDBX).
Redbox Entertainment Inc. (NASDAQ:RDBX) is currently the most shorted stock as short sellers anticipate the deal to fail and the company to collapse under the burden of losses and high debt on its books. Redbox went public in October 2021 through a merger with a special purpose acquisition company (SPAC).
As of Q1 2022, only 5 hedge funds held a stake in Redbox Entertainment Inc. (NASDAQ:RDBX).
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Disclose. None. 10 Most Shorted Stocks to Watch in July is originally published on Insider Monkey.
