Potential economic recovery coupled with the federal government’s unprecedented fiscal stimulus has the S&P 500 trading at all-time highs. But the U.S. unemployment rate, around 10%, has many investors skeptical of the strong market rally.
Investors often use the short-selling activity as a measure of market sentiment. Short sellers make bets against individual stocks. Many times, short-sellers see a critical flaw in a company’s underlying business. Other times, they believe an otherwise high-quality stock has risen too high too fast.
But while a large short position may be a red flag for individual companies, stocks with a high short percentage of the float are often vulnerable to short squeezes. Short squeezes are large, short-term spikes in share price triggered when short sellers are forced to close out their positions all at once
S3 Partners analyst Ihor Dusaniwsky says these five stocks are getting the most attention from short sellers heading into September:
Here Are The Most Shorted Stocks of September 2020
Apple has been one of the top performers in the market in 2020 and is up more than 80% overall year to date. In August, Apple made history by becoming the first mega-cap tech stock to reach a $2 trillion market capitalization. The store has shown no signs of slowing down heading into what could be a massive 5G iPhone upgrade cycle.
Apple also recently completed a 4-for-1 stock split after a multi-year run to all-time highs.
Apple short sellers may be betting that the 5G iPhone launch will mark a top for the stock, or they may simply be using Apple as a hedge against long positions in other stores. Whatever the reason, Dusaniwsky says Apple has $14.3 billion in short interest, more than any other stock in the world other than Tesla (TSLA). As Apple shares have risen, short-sellers are digging in their heels.
GSX Techedu (GSX)
GSX Techedu is a Chinese online education and tutoring company. The stock skyrocketed more than 330% in 2020, but some high-profile short-sellers are taking notice. Last quarter, GSX reported 382% revenue growth and 336% net income growth, but short-seller firms Citron Research, Muddy Waters Research and Grizzly Research have all accused the company of financial fraud.
In early August, Citron compared GSX to fraudulent German payment processor Wirecard. Dusaniwsky says short selling in GSX really started to pick up in late March. But many of those short-sellers have endured heavy losses given the stock’s year-to-date gains.
GSX short sellers may be emboldened by other recent high-profile Chinese frauds, including education company TAL Education Group (TAL). GSX Techedu has $2.61 billion in short interest, up to $336.6 million in the past three weeks alone.
Sea is a mobile and PC gaming platform, developer and e-commerce marketplace operator headquartered in Singapore. Sea shares are up around 298% year to date and 1,040% since August 2018, as the global health crisis has provided a major boost for the gaming industry.
Sea went public back in 2017, and its mobile game Free Fire has accumulated up to 80 million daily active users. In late August, Sea reported nearly 188% year-over-year e-commerce revenue growth and almost 62% year-over-year digital entertainment revenue growth.
While Sea investors see a company generating tremendous growth in a booming tech field, short-sellers may see a stock that could be overheating and a company that has yet to report a profit.
Short sellers weren’t deterred by the earnings report, adding $185.8 million to their position in the past three weeks and bringing Sea’s total short interest up to $4.14 billion.
Teladoc Health (TDOC)
Teladoc Health provides virtual access to health care providers. In early August, the company announced an $18.5 billion merger with Livongo Health (LVGO), a software company that develops products for monitoring and managing chronic diseases.
Some investors have praised the merger agreement as a timely investment to expand Teladoc’s digital and remote health care services. But short-sellers may be concerned with its debt and its steep valuation relative to its historical range. Teladoc will also assume Livongo’s $550 million in debt.
In the second quarter, ending on June 30, Teladoc reported a 92% increase in paid members. Its stock was up about 150% in 2020.
Teladoc short-sellers have added $159.3 million to their positions in the past three weeks, bringing the stock’s total short interest up to $1.69 billion.
Workhorse Group (WKHS)
Tesla got a lot of attention in 2020 due to its rising share price, but it’s not the only electric vehicle stock-raising some eyebrows. Shares of Workhorse are up more than 480% in 2020, outpacing even Tesla.
Workhorse is aiming at replacing gasoline- and diesel-powered delivery vehicles with its electric vehicle vans. Investors see a significant long-term opportunity for the company, but its huge rally has set a high bar. Workhorse now has around a $1.9 billion market cap despite reporting only $92,000 in second-quarter revenue.
An increasing number of short sellers are starting to see the frenzy of seemingly indiscriminate buying in EV stocks in 2020 as a potential bubble, and Workhorse’s early-stage status could place it among the most vulnerable stocks if the bubble bursts.
Workhorse has $435 million in total short interest, an increase of $137.9 million in the past three weeks alone. Its short part also represents 30.7% of its float, by far the highest percentage of all five stocks mentioned.