Looking to catch lightning in a bottle? Penny stocks can be your hot ticket. But in today’s article, we’re not talking about safety first, we’re talking about high-risk, volatile trading. One of the most frequently discussed topics this year is short squeeze stocks.
These were made popular by AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), Camber Energy (NYSE:CEI), and other so-called meme stocks that ran fast and furious to the tune of thousands of percentage points. While they all may still trade higher than they did at the start of the year, they’ve all come back down in price almost as quickly.
What’s this tell you about short squeeze penny stocks? Be ready for a wild ride if that squeeze gets triggered. I also understand that some of you reading may not be fully aware of what is involved in a “squeeze,” so let me give you some of the basics.
Definition Of A Short Squeeze
You might’ve seen one of the penny stocks mentioned above and wondered, “how do I find short squeeze stocks” like those? The first step is identifying short interest. Different outlets have varying data that may or may not align. But with slight differences, most sources will identify the same stocks. So what are you looking for?
A higher level of short selling will entail the percentage of the public float that is short being somewhere in the ballpark of 17-20% on the low end. Then you’ll want to identify the stocks that have consistent or higher levels of trading activity. For instance, there could be a stock with 90% short interest but if it doesn’t trade at all or has a very wide spread, chances are no average trader is going to pay attention. The key with short squeeze stocks is capitalizing on momentum.
Read more: 4 Hot Penny Stocks To Watch This Week
So what causes a short squeeze? If you understand shorting, you know that it involves someone borrowing shares, selling them, and buying them back to return that “borrow” after a stock retreats. But when a stock doesn’t go down and, instead, goes higher, those borrowed shares still need to get returned. When this happens, short sellers end up buying shares back at higher prices than they sold them for, resulting in a loss. As short cover buying compounds with retail buying, you see this squeeze trigger. In that case, massive spikes can ensue.
Short Squeeze Penny Stocks To Buy [or avoid]
Again, just because short interest might be “high,” that doesn’t guarantee a squeeze will happen. With this in mind, however, let’s look at some penny stocks with higher short interest and recent trading momentum. Are they top names to buy or avoid entirely?
- Leap Therapeutics (NASDAQ:LPTX)
- BEST Inc. (NYSE:BEST)
- Lordstown Motors Corp. (NASDAQ:RIDE)
- Gaotu Techedu Inc. (NYSE:GOTU)
Penny Stocks To Buy [or avoid] #1. Leap Therapeutics (NASDAQ:LPTX)
Immuno-oncology company Leap Therapeutics has been one of the top biotech penny stocks to watch during the second half of 2021. While most of the year was quiet for Leap, the last few weeks have become much more active. Contributing to this were two industry conferences, which gave the company an outlet to update the public on its active pipeline developments.
This included new data presented from a study being conducted on its DKN-01 plus tislelizumab at the European Society for Medical Oncology last month. Let’s just say that Leap came through big and reported that this treatment was well-tolerated with “compelling” activity in patients with gastric or gastroesophageal junction cancers.
Following news of an upsized, $100+ million offering, LPTX stock has slid a bit. However, these funds are earmarked for the continued development of DKN-01 among other things. That could mean more potential for building upon the progress shown at the ESMO Conference in September.
As far as “short squeeze stocks” are concerned, LPTX short interest shows around 35.5% of the float short right now. with momentum building and new capital in hand will this become one of the short squeeze penny stocks to watch right now?
2. BEST Inc. (NYSE:BEST)
BEST has been one of the more actively discussed short squeeze penny stocks to watch this year. If you’re looking for fundamental developments, details are spotty at best – no pun intended. Not much has been announced by the company over the last several months. However, that doesn’t mean there aren’t a few things to consider.
First, the company is part of the global supply chain solutions and logistics industry. Reopening efforts continue as the year rolls on albeit slower due to bottlenecks. Even with this as the case, BEST Inc. and its positioning in the Chinese market have become a focal point for some traders. Earlier this year, the company reported strong earnings and growth in its global business. According to BEST, parcel volume in Southeast Asia, alone, increased over 140% compared to the previous year’s period. The company also beat. estimates on earnings per share by a wide margin.
With earnings season beginning this will likely be something to keep in mind. Will growth continue at the same pace or will the latest bottlenecks slow the pace? On top of this, you can’t ignore BEST getting thrown into the mix of short squeeze stocks to watch right now. Outlets are currently showing its short float percentage hovering around 28% right now.
Penny Stocks To Buy [or avoid] #3. Lordstown Motors Corp. (NASDAQ:RIDE)
Something I want to mention that shorting a stock isn’t as “dastardly” as some make it out to be. It’s a function of the market that allows you to take advantage of a stock’s decline in the event you don’t trade things like options or other derivatives. In many cases, heavily shorted stocks are anticipated to fall for a reason. Lordstown Motors is a clear example. Shares have plummeted this year from over $25 to under $5 this month.
If you’re unfamiliar with this company, I’ll get you up to speed quickly. Lordstown is an electric vehicle company developing light-duty commercial fleet vehicles. High levels of cash burn and an unclear future with Foxconn have become just a few of the sticking points for the long-term outlook in the penny stock. Regardless, RIDE stock has seen a few glimpses of hope as a meme stock, sporadically breaking out on speculative trading thanks to social media hype. Overall, though, it remains trading on the lower end of its range for the year.
Is there hope for Lordstown? Discussions remain ongoing for Foxconn to purchase Lordstown’s Ohio assembly plant and build EVs for Fisker (NYSE:FSR). However, final negotiations are still up in the air. With the speculative nature of the stock and the current short float of nearly 25%, it has hit the watch lists of traders seeking potential short squeeze stocks. Will traders choose to RIDE this hype or avoid the beaten-down EV entirely?
4. Gaotu Techedu Inc. (NYSE:GOTU)
Finally, Gaotu Techedu sits as the stock with the highest short float percentage on this list of penny stocks. Coming in just shy of 39% there’s no question that there’s a big bet against the Chinese online education company. An unclear outlook on Beijing’s for-profit education have put a damper on related companies this year.
You’ll also see that earlier this summer, Gaotu stated that “compliance with the Beijing Measures will have a material adverse impact on its business, results of operations and financial condition. Specifically, in compliance with the Beijing Measures, the Company has stopped and will stop offering online Academic AST classes over weekends, national holidays, and school break periods.”
Even with this as the case, GOTU stock remains on the list of some traders right now. With a large short interest and continued speculation, there’s no shortage of volatility so far this month. Whether or not that translates to a bullish move is yet to be seen.
Are Penny Stocks Worth The Risk?
This is just a handful of penny stocks with higher short interest. Keep in mind that if or when a squeeze happens, volatile movement can be close behind. In that event, you’ll want to be well-equipped with the right strategies to handle such wild swings. Here are a few articles we’ve put together going over some of the basics of trading cheap stocks:
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