Short squeezes affect heavily shorted stocks when many sellers are forced to buy back the shares they shorted. That dynamic, in turn, causes the stock’s price to soar, creating more purchases by short sellers and causing the process to continue. Ultimately, short squeezes can cause equities to soar tenfold, even 15-fold, resulting in gigantic profits for the investors who hold the short squeeze stocks.
I believe that recent events, including the downgrade of U.S. debt Fitch and the downgrade of ten banks’ debt by Moody’s, have resulted in the creation of many excellent short-squeeze candidates. It appears that a multitude of frustrated bears, who were sure that a recession was coming and lost money betting on such an outcome, have used the downgrades and the fact that stocks are seasonally weak in August to short many growth stocks with excellent fundamentals. Here are three such top squeeze stocks.
Bionano (BNGO)
Bionano’s (NASDAQ:BNGO) products allow medical professionals and scientists to conduct optical genome mapping (OGM) of DNA. By using OGM, these professionals can identify more structural variations in DNA than with existing older methods that are frequently utilized. As a result, they can diagnose and treat many diseases with higher accuracy across a multitude of illnesses.
Bionano’s stock recently dropped over 50% after it carried out a reverse stock split. But the split did not change the company’s strong fundamentals at all. With the shares’ market capitalization now standing at just $123 million, I believe that they are tremendously overvalued, given the strong, rapidly growing demand for its offerings.
That powerful demand was exhibited in Bionano’s second quarter results, as the number of flow cells it used more than doubled to 7,062 compared to a year earlier. Flow cells are used to carry out OGM of cells with Bionano’s Saphyr systems.
Moreover, CEO Erik Holmlin noted that progress is being made on multiple fronts to obtain reimbursement from insurers for OGM. For example, BNGO is “frequently” holding talks with Palmetto which authorizes “coverage and reimbursement for molecular diagnostic tests” in the U.S.
Holmlin added that “we’ll have some more formal discussions with them later in the year,” and that Bionano would submit an application for Medicare coverage by the end of 2023.
About 14.5% of BNGO stock is being sold short.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) delivered very strong growth last quarter, and that trend is poised to continue going forward with its profitability receiving big boosts in the coming months.
The company’s top line soared a tremendous 72% compared to the same period a year earlier, hitting a quarterly record of $260.2 million. Additionally, it reiterated its guidance for full-year revenue of $1.2 billion to $1.4 billion.
Meanwhile, the company is predicting that the production increases resulting from the completion of a green hydrogen plant in Georgia will lower its “fuel margin loss by as much as half” by the end of the year. And PLUG indicated that it could generate a great deal of revenue into 2024 by swelling more of its electrolysers, which are used to generate green hydrogen.
PLUG has already announced a few such deals, and they have tended to be very lucrative. Such agreements are likely to both boost Plug’s financial results and raise PLUG stock, potentially triggering a short squeeze in the coming weeks or months.
Finally, the company’s material handling business is expanding at twice the rate of last year. PLUG also noted that Microsoft (NASDAQ:MSFT) and multiple, other large companies are interested in “large-scale stationary” power soluitons. Any announcement of the acquisition of this product by a huge firm could easily trigger a short squeeze.
Nearly 21% of PLUG stock is being sold short.
Super Micro Computer (SMCI)
In my view, you only need to know a few data points in order to realize that Super Micro (NASDAQ:SMCI), which develops servers used to facilitate artificial intelligence, is headed much higher.
First, according to investment bank Northland Capital Markets, the company’s “AI-related revenue” tripled in the second quarter versus the previous quarter. As Seeking Alpha reported, the performance contributed $1.1 billion out of its $2.1 billion total revenue. And second, its price-earnings ratio is just 23, according to Marketwatch. That’s not much above the average price-earnings ratio of the S&P 500.
Also noteworthy is that CEO Michael Staiger recent statement that “Our role as the leader of rack-scale Total AI and IT Solutions has only just begun.” This appears to suggest that the company’s revenue from AI users will continue to grow extremely rapidly going forward.
Indeed, analysts expect the company’s earnings per share to soar to $17.26 next year from $11.81 in 2022.
On the date of publication, Larry Ramer was long BNGO, PLUG, and SMCI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.