Short squeeze stocks can provide particular opportunities no matter what the market is doing.
The market has declined in August as traders have taken some profits after a strong first half to the year. There are certainly some storm clouds on the horizon thanks to the Fed’s tight monetary policy and a potentially slowing economy. That said, the recent decline has created some oversold short squeeze stock opportunities.
Not all highly shorted stocks are good buy-the-dip candidates. After all, bears are sometimes on to something with their bets.
But with these seven short squeeze stocks, there are strong underlying fundamentals to these firms which could power large rallies going forward.
All seven of these stocks have at least 5% of their float sold short today, making for plenty of squeeze potential when sentiment turns.
Airbnb (ABNB)
Airbnb (NASDAQ:ABNB) is a leading online hospitality platform. The firm has become a key player in the so-called sharing economy, allowing homeowners to earn extra income by leasing out their properties on a short-term basis.
While Airbnb hasn’t totally displaced hotels, it has created a significant alternative to the traditional hospitality experience. Proving especially popular with younger travelers, it appears Airbnb should have a long runway to continue to expand its total addressable market.
That said, there are current fears around what some are deeming an “Airbnbust.” However, more nuanced data analysis shows that overall bookings are up. And while some markets are struggling, on balance, the platform continues to deliver strong results for its partners.
Despite that, ABNB stock has sold off recently. This has pushed ABNB stock down to just 33 times forward earnings, which is not too bad for a fast-growing, well known online brand like this one.
Once fears around a potential travel slowdown pass, this is one of the short squeeze stocks set to move higher.
Albemarle (ALB)
Albemarle (NYSE:ALB) is a North Carolina-based specialty chemical company. In recent years, Albemarle has specialized in lithium production, making it a key player in the emerging electric vehicle battery supply chain.
Albemarle has a long and profitable history; indeed, it has raised its dividend for more than 25 consecutive years, which is quite the record for a company which critics might brush off as a boom/bust chemical outfit.
Yet, bears are now hounding the company once again. There are two primary reasons for this. One, lithium prices have plunged this year among an economic slowdown in China. That’s an honest short-term concern, but shouldn’t affect the longer-term adoption of lithium batteries.
Second, western media outlets rushed to report that Chile was threatening to nationalize its lithium industry, where Albemarle has a large piece of its operations.
These accounts were largely walked back later; Chile is actually proposing something closer to a public-private partnership. Besides, Chile’s unpopular president doesn’t have the votes in the legislature to make anything much happen.
Regardless, the damage was done and ALB stock is down roughly 35% over the past year. This makes income champion one of the better short squeeze stocks out there.
Unity Software (U)
Unity Software (NYSE:U) operates one of the two primary independent graphics engines for the video gaming industry.
Despite the crash in the firm’s stock price, it continues to grow revenues at more than 20%/year, and I expect that it may do so for most of the 2020s.
Combine its rapid top-line growth rate with the fact that the company is already modestly profitable, and there are good traits here.
Short sellers are attracted to Unity for several reasons. They worry about its reliance on lower-quality advertising for much of its revenues.
Unity has thus far struggled to develop other commercially monetized uses for the software outside of the video gaming market.
That said, the core product is great. And there are multiple ways to win, such as if the Apple (NASDAQ:AAPL) VR product, in partnership with Unity graphics, starts to become a mainstream success.
Unity is among the high risk/high reward short squeeze stocks at its current valuation. That said, shares could skyrocket if shorts head for the exits following an upbeat earnings report.
Host Hotels & Resorts (HST)
AirBnb isn’t the only company cashing in on the travel and leisure boom. There’s also Host Hotels & Resorts (NYSE:HST).
Host is the largest lodging real estate investment trust (REIT) in America and one of the largest owners of luxury and upper-upscale hotels.
Host owns 72 properties U.S. hotels and five more overseas adding up to more than 40,000 rooms. It operates hotels for brands such as Marriott, Ritz-Carlton, Sheraton, Hyatt, and many more.
Host shares bounced back to pre-pandemic levels in 2022 as travelers returned in large numbers. However, Host has now seen its momentum slip. With traders fearing a potential recession, HST stock has dipped to near 52-week lows today.
That puts shares at just eight times forward funds from operations (P/FFO) while offering a 3.3% dividend yield.
MarketAxess Holdings (MKTX)
MarketAxess Holdings (NASDAQ:MKTX) is a leading digital bond trading platform.
Historically, fixed income was the last major financial market to move from physical and phone-based trading to digital solutions.
This makes sense as bonds are less standardized than stocks, options, or futures. Bonds often have different clauses, covenants, and other such quirks that lead folks to want to trade them in-person rather than on a screen.
That said, the pandemic and the related remote work movement forced a lot of bond trading onto digital platforms at last. This has led to a major growth opportunity for MarketAxess and its chief rival, Tradeweb Markets (NASDAQ:TW).
MarketAxess grew its revenues from $436 million in 2018 to an estimated $770 million this year. As happened with many digital platforms, however, traders got way too excited, causing MKTX stock to nearly double during the peak of the work-from-home era.
Now, though, MarketAxess has become oversold. Shares are down by more than half from their all-time highs even as the company continues to quickly grow and is highly profitable. Bears have overstayed their welcome, and MarketAxess could be primed for a major short squeeze.
Zions Bancorporation (ZION)
Zions Bancorporation (NASDAQ:ZION) is a leading Rocky Mountains-focused regional bank based out of Salt Lake City.
Not surprisingly, ZION stock got caught up in the regional banking scare earlier this year. But that panic appears to be unfounded.
That’s because Zions operates as a commercial bank, providing services to small- and mid-sized businesses. In return, those business owners keep their commercial non-interest-bearing accounts at Zions branches to maintain their customer relationship.
This ensures that Zions has access to a large and stable low-cost deposit base. Recent figures bore this out.
As of June 30, 2023, Zions’ total deposits increased $5.1 billion, or 7%, from March 31, 2023 thanks to a rise in both customer and brokered deposits.
While other regional banks have seen deposits leave their branches, Zions’ differentiated business model has stood out this year.
ZION stock has bounced from a low of $18 to $35 thanks to its upbeat earnings and deposit data. However, there is plenty more room to run, as shares traded as high as $60 last year. The stock also offers a generous 4.8% dividend yield today.
Sabre Corp. (SABR)
Sabre (NASDAQ:SABR) is one of the three primary global distribution systems for airlines, passenger railroads, hotels and other types of transportation and hospitality ticketing and reservations.
These essentially serve as a marketplace platform for the travel industry. Airlines, passenger railroads, cruise lines, and so on can post their itineraries and pricing on Sabre’s GDS.
Then travel agents, online booking sites, corporate travel planners and so on can view all the competitive offerings and book the one that best serves their needs. Sabre, in turn, earns a cut of that transaction.
Sabre had invested heavily in its information technology platform just prior to the pandemic. This proved to be dreadful timing, as the company was left with a mountain of debt and no cash flow coming in.
However, SABR stock now appears to be turning the corner. As travel has come roaring back, Sabre’s cash flow picture is improving.
Meanwhile, Sabre’s now modernized IT systems should provide significant cost savings going forward. As Sabre returns to profitability, it could set off the powder keg that is Sabre’s 13% short interest.
On the date of publication, Ian Bezek held a long position in ZION, ALB, and U stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.