The short squeeze that continues to send shares of GameStop higher has spread to other small capitalization stocks with high short interest. And while it would be more difficult for this kind of trading to spread to large capitalization stocks, there are some that share similar characteristics with those that popped.
High short interest is, essentially, a high percentage of total shares available for trading borrowed and sold by bearish investors betting on price declines. It can exacerbate a stock’s price rise in a short squeeze because investors like hedge funds, who for the most part are active short sellers, have to buy more shares to cover bets as losses mount. That’s what happened when traders targeted GameStop (ticker: GME) and Bed Bath & Beyond (BBBY), whose short interest is far above the average short interest for stocks in the Dow Jones Industrial Average or S&P 500.
Goldman Sachs publishes a report that looks at the holdings of 814 hedge funds with $2.4 trillion of gross equity positions. As of the start of the fourth quarter 2020, the most recent report available, 10 of the stocks Goldman calls “very important short positions” for hedge funds with the highest short interest included: C.H. Robinson Worldwide (CHRW), Advanced Micro Devices (AMD), Aon (AON), Duke Energy (DUK), Analog Devices (ADI), Kroger (KR), Simon Property (SPG), Hormel Foods (HRL), Willis Towers Watson (WLTW) and Chipotle Mexican Grille (CMG).
Those are not small capitalization stocks like GameStop. GameStop is worth more than $24 billion as of Wednesday’s closing price, but six months ago it was valued at less than $300 million. The average market cap of Goldman’s group is about $44 billion. The least valuable company is Willis Towers Watson with a $26 billion market cap.
The short interest in these 10 doesn’t compare with stocks such as GameStop or Bed Bath and Beyond, either. The average percentage of stock available to trade sold short in the 10 stocks is about 7%. Short interest in Bed Bath and Beyond is about 67%.
Lower short interest limits the potential for a big move. But there are rumblings of a squeeze. The average gain in the 10 VISP stocks over the past five trading days is about 1.2%. The S&P 500 is down about 2.6% over the same span.
If fallout from the GameStop squeeze continues, the impact could spread to those 10 stocks. Kroger and Hormel shares are already up more than others, by 17% and 13%, respectively, over the past five days.
That’s because losses piling up for hedge funds can cause them to sell long positions. It also means they may have to cover short positions, the trading action that is causing more intense short squeezes like GameStop’s.
Gains like GameStop are unlikely for those stocks. Still, nothing seems to be off the table these days.
Write to Al Root at allen.root@dowjones.com
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January 28, 2021 at 09:24PM
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10 Popular Hedge Fund Shorts That Could Get Squeezed Next - Barron's
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