In this article, we discuss the 10 stocks that short sellers were right about. If you want to skip our detailed analysis of these stocks, go directly to Short Sellers Were Right About These 5 Stocks.
Short-sellers were the headliners of early 2021. A year later, these short-sellers are once again in the spotlight amid a United States government probe into manipulative trading practices on Wall Street. According to a report by news agency Reuters, the US Department of Justice is considering the utilization of the Racketeer Influenced and Corrupt Organizations Act to file charges in the probe. High profile names in the hedge fund industry, like Citron Research and Muddy Waters Research, are implicated in the investigation.
Racketeering charges have only been brought up against big names in the finance world on two previous occasions. In the 1980s, Michael Milken was charged under the law while in 2019 JPMorgan executives were charged in relation to the price manipulation of precious metals. Critics accuse short-sellers of leveraging investor reports with misleading information to influence stock prices of large companies. Elon Musk, one of the richest men in the world, has famously sparred with short-sellers on numerous occasions as they short Tesla stock.
Despite the claims of racketeering, short-selling remains one of the most potent ways of making money at the stock market. Short-sellers have made millions by accurately predicting the downfall of large corporations months before they start showing signs of weakness. Some of the stocks that short sellers have been right about in the past six months include Allbirds, Inc. (NASDAQ:BIRD), Cortexyme, Inc. (NASDAQ:CRTX), and Blink Charging Co. (NASDAQ:BLNK), among others discussed in detail below.
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Our Methodology
These were picked keeping in mind the float shorted and the decline in share price over the past year. The analyst ratings and business fundamentals of each stock are also discussed to provide readers with some additional context for their investment choices.
Data from around 900 elite hedge funds tracked by Insider Monkey was used to identify the number of hedge funds that hold stakes in each company.
Short Sellers Were Right About These Stocks
10. Bed Bath & Beyond Inc. (NASDAQ:BBBY)
Number of Hedge Fund Holders: 17
Float Shorted: 30%
Decline in Share Price Over Past Six Months: 54%
Bed Bath & Beyond Inc. (NASDAQ:BBBY) operates a chain of retail stores. There has been little hedge fund activity around the stock in recent months. At the end of the fourth quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $73 million in Bed Bath & Beyond Inc. (NASDAQ:BBBY), the same as in the previous quarter worth $122 million.
On January 7, Loop Capital analyst Anthony Chukumba maintained a Sell rating on Bed Bath & Beyond Inc. (NASDAQ:BBBY) stock and lowered the price target to $10 from $14, underlining that the firm had lost “customer relevance” and “market share” and was struggling with earnings as well.
Just like Allbirds, Inc. (NASDAQ:BIRD), Cortexyme, Inc. (NASDAQ:CRTX), and Blink Charging Co. (NASDAQ:BLNK), Bed Bath & Beyond Inc. (NASDAQ:BBBY) is one of the stocks feeling the heat of an economic slowdown.
In its Q2 2021 investor letter, Heartland Advisors, an asset management firm, highlighted a few stocks and Bed Bath & Beyond Inc. (NASDAQ:BBBY) was one of them. Here is what the fund said:
“The gyrations of story stocks touted on message boards have resulted in distortions in the market but on rare occasions have also swept up a few compelling opportunities. Bed Bath & Beyond Inc. (NASDAQ:BBBY), a national retailer of home goods, babywear and health and beauty products, is one example.
Even before Bed Bath & Beyond Inc. (NASDAQ:BBBY) made headlines earlier this year when day traders drove the price of shares up in an effort to squeeze short sellers, the company had caught our attention for the results its new management team was delivering since taking over in late 2019.
CEO Mark Tritton, who came to Bed Bath & Beyond Inc. (NASDAQ:BBBY) after a successful tenure at Target, quickly got to work installing new corporate leadership, closing underperforming stores, selling non-core businesses to firm up the balance sheet, and implementing retail best practices across the company. He also worked to improve store efficiency and revamped the company’s online presence.
The moves by Tritton made an impact. In its 2020 fiscal year, Bed Bath & Beyond Inc. (NASDAQ:BBBY) closed 144 under-performing stores, grew new digital customers by 95%, reduced debt by $1 billion, and returned $375 million of capital to shareholders. Despite the meaningful improvements, and the strong performance year-to-date, shares of the retailer are trading at just .35X sales and less than 5X estimated 2022 earnings before interest, taxes, depreciation, and amortization—roughly half of the multiple commanded by peer Williams- Sonoma Inc.
At current valuations, we view BBBY as offering attractive upside as recent improvements gain traction. It appears we’re not alone as executives have also been buying shares in recent months.”
9. Nikola Corporation (NASDAQ:NKLA)
Number of Hedge Fund Holders: 13
Float Shorted: 30%
Decline in Share Price Over Past Six Months: 33%
Nikola Corporation (NASDAQ:NKLA) develops energy and transportation solutions. In November, BTIG analyst Gregory Lewis had downgraded the stock to Neutral from Buy without a price target, noting that the growth story of the firm was compelling but valuation was one of the reasons behind the downgrade.
Elite hedge funds continue to hold large stakes in Nikola Corporation (NASDAQ:NKLA). Among the hedge funds being tracked by Insider Monkey, San Francisco-based firm Inclusive Capital is a leading shareholder in Nikola Corporation (NASDAQ:NKLA) with 10 million shares worth more than $101 million.
In its Q4 2020 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and Nikola Corporation (NASDAQ:NKLA) was one of them. Here is what the fund said:
“Nikola Corporation (NASDAQ:NKLA) is a poor-man’s facsimile of Tesla. Even the name is a blatant ripo: both are named aer the inventor Nikola Tesla. Nikola Corporation (NASDAQ:NKLA) is a pre-revenue company founded in 2014 that has yet to bring a product to market, despite the promotion of a dizzying array of concepts:
Nikola Badger: pickup with both fuel-cell and electric variants
Nikola One: fuel-cell commercial semi-truck
Nikola Two: fuel-cell commercial semi-truck
Nikola Tre: electric commercial semi-truck
Nikola NZT: electric four-wheel drive utility vehicle
Nikola Reckless: electric military grade o-highway vehicle
Nikola WAV: electric watersports vehicle
As far as we can tell from their latest investor communications, only the Nikola Tre Commercial semitruck is still in development.
As far as we can tell from their latest investor communications, only the Nikola Tre Commercial semitruck is still in development. NKLA’s history is full of deception and vaporware. They showed a video of the Nikola One in motion; they later admitted that it didn’t work and was just rolling down a hill. NKA’s founder Trevor Milton resigned in disgrace aer Hindenburg Research published a report calling Nikola Corporation (NASDAQ:NKLA) an “intricate fraud.” NKLA is currently under investigation by both the SEC and DoJ. Partnerships with GM, Republic Services and BP have been canceled. Nevertheless, the company sports an $8b market cap, because “electric vehicles.” Though pretenders are particularly ubiquitous in the bubbly EV industry, pretenders are to be found in many other industries as well.”
8. Beyond Meat, Inc. (NASDAQ:BYND)
Number of Hedge Fund Holders: 19
Float Shorted: 33%
Decline in Share Price Over Past Six Months: 61%
Beyond Meat, Inc. (NASDAQ:BYND) makes and sells plant-based meat products. It is one of the most traded food stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Beyond Meat, Inc. (NASDAQ:BYND) with 2 million shares worth more than $130 million.
Beyond Meat, Inc. (NASDAQ:BYND) stock has suffered as investors move towards value plays in hopes of shielding themselves from volatility. The stock lost close to 9% in value on January 24 alone. However, the shares have since rallied as analysts upgrade on valuation.
In its Q2 2021 investor letter, Baillie Gifford, an asset management firm, highlighted a few stocks and Beyond Meat, Inc. (NASDAQ:BYND) was one of them. Here is what the fund said:
“One of the most important cognitive elements is our recognition that consumer patterns and attitudes are evolving increasingly rapidly and with ever greater amplitude. While the human needs for self-actualisation, esteem and belonging are innate and immutable, they are being expressed in new ways. Tastes are being shaped by social groups who are culturally similar but geographically distant. The lines between the physical and digital-self continue to blur.
To those in the throes of middle age, this can be discombobulating. I profess to unease when my daughter recently earned five pounds stacking logs – only to ‘blow’ this pocket money on a pair of virtual Gucci sneakers for her online Roblox character. But we need to be imaginative about the possible size of the market for virtual luxury in the long term and it’s encouraging to observe that Kering is already on the front foot. It is also amply clear that the experienced Long Term Global Growth investors who predate Generations Y & Z, need the help of colleagues in understanding the mood and aspirations of a new cohort of conscious consumers. In this sense, the multigenerational and multicultural dynamic within the LTGG team (and indeed across the broader Baillie Gifford investment floor), has never seemed more important.
It was the younger members of the team who pushed us to be more imaginative on the true size of the opportunity for Beyond Meat, Inc. (NASDAQ:BYND). This holding’s investment case is predicated firmly on the removal of the cow as a rather inefficient middle-man between the sun and the stomach. Some within the team see no reason why the opportunity for Beyond Meat, Inc. (NASDAQ:BYND) shouldn’t ultimately be larger than the $500bn market for traditional protein forms.”
7. Arcimoto, Inc. (NASDAQ:FUV)
Number of Hedge Fund Holders: 1
Float Shorted: 35%
Decline in Share Price Over Past Six Months: 59%
Arcimoto, Inc. (NASDAQ:FUV) markets three-wheeled electric vehicles. The company posted earnings for the third quarter in November 2021, reporting earnings per share of -$0.31, missing estimates by $0.11. The revenue over the period was $1.5 million, missing expectations by $0.3 million.
Hedge funds have been offloading Arcimoto, Inc. (NASDAQ:FUV) as well. At the end of the fourth quarter of 2021, 1 hedge fund in the database of Insider Monkey held stakes worth $1.1 million in Arcimoto, Inc. (NASDAQ: FUV), compared to 3 in the previous quarter worth $3 million.
6. Heron Therapeutics, Inc. (NASDAQ:HRTX)
Number of Hedge Fund Holders: 19
Float Shorted: 35%
Decline in Share Price Over Past Six Months: 39%
Heron Therapeutics, Inc. (NASDAQ:HRTX) is a biotech firm working on treatment for unmet medical needs. The hedge fund sentiment around the stock remains positive despite a dramatic drop in share price over the past few months. At the end of the fourth quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $266 million in Heron Therapeutics, Inc. (NASDAQ:HRTX), up from 16 in the preceding quarter worth $271 million.
Heron Therapeutics, Inc. (NASDAQ:HRTX) has struggled to impress investors with pipeline drugs in the past few months. It recently announced the submission of a new drug approval application to the FDA for HTX-019, a drug for the prevention of postoperative nausea.
In addition to Allbirds, Inc. (NASDAQ:BIRD), Cortexyme, Inc. (NASDAQ:CRTX) and Blink Charging Co. (NASDAQ:BLNK), Heron Therapeutics, Inc. (NASDAQ:HRTX) is one of the stocks that elite investors have been shorting.
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Disclosure. None. Short Sellers Were Right About These 10 Stocks is originally published on Insider Monkey.
