2 FTSE 250 stocks that I think could soar like the GameStop share price in 2021

After the roller coaster surrounding the GameStop share price this week, Jonathan Smith looks for some UK stocks that he thinks could grow this year.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman sneaker shoe and Arrow on street with copy space background

Image source: Getty Images

The incredible news surrounding the GameStop share price has generated a surge in attention around mid-cap stocks. The short story is that the share price has risen from $20 to around $400 in one month. There are various reasons behind this incredible rise, not least the power of the retail investor.

As a retail investor myself, it gets me excited to try and find other stocks that have the potential to take off this year. I want to stay closer to home, so I’ll be focusing on FTSE 250 stocks.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Impossible to replicate the GameStop share price move

The move seen in the GameStop share price this week was an exceptional event. Therefore, I’m not claiming to be able to buy stocks that offer those gains in that timeframe. However, I am looking for higher-than-average returns.

In order to try to beat the market, I’m looking at a contrarian investing strategy. That means I want to find undervalued companies, with a falling or low share price. I also want to identify stocks that are being shorted. But, buying a heavily shorted stock is risky, so I need to keep those risks top of mind.

The GameStop share price had 139% of short interest earlier this week. This meant that more than all the available shares (100%) were actually being used to short the stock. This is extreme, and I don’t think it’s sensible to be this aggressive when looking for stocks that are temporarily unloved. Among the top 10 most shorted stocks in the UK are Metro Bank and Royal Mail.

The main risk to me buying any of the above stocks is that the share price could fall. This fall could be sharper than with other stocks, as selling can intensify in a short time period. Even the GameStop share price experienced sharp falls in the past, before rallying higher.

FTSE 250 stocks to look at

Metro Bank is the most shorted stock at the moment in the UK, with short interest of 14.55%. The share price has almost halved compared to this time last year. However, I think that the share offers good value. For example, the bank recently sold £3bn of its mortgage book to NatWest Group. This offloaded debt and also boosted liquidity at the same time. The move ensured that Metro met its regulatory capital requirements, and meant that it didn’t need to raise more capital through added debt. Those are both positives. I’m still cautious about NatWest Group, though, given its accounting blunder in 2019.

Royal Mail is also in the top 10 most shorted UK stocks. However, the share price isn’t under as much short interest as the GameStop share price. It’s actually up 100% in the past year. I like the stock as the transformation strategy to focus on the growing parcel sector takes shape. The cost cutting of 2,000 jobs is expected to save £130m come March, which will boost liquidity. However, I am also concerned in that it will likely report a loss for 2020. It also has risk due to the stiff competition in the delivery market.

Yes, there is the risk of underperformance for both these stocks, as with any stock, but risk tolerance is very personal. Overall, I think Metro Bank and Royal Mail have the potential to surge higher this year, and I’m comfortable with their risks.

More on Investing Articles

Senior woman wearing glasses using laptop at home
Investing Articles

2 value stocks with high dividend yields to buy in July

Our writer examines two value stocks for his portfolio that marry low price-to-earnings ratios with high dividend yields.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Could I double my money buying at today’s Scottish Mortgage share price?

The Scottish Mortgage share price has crashed. Does that mean now could be a rewarding moment for our writer to…

Read more »

Hand holding pound notes
Investing Articles

Will the Lloyds dividend yield top 5%?

Our writer considers the outlook for the Lloyds dividend -- and what he should do about it.

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

3 ways I’m protecting my FTSE 100 stock portfolio right now

Jon Smith writes about several different ways he's trying to plan for the future to try to make his FTSE…

Read more »

Preparing a budget during a pandemic
Investing Articles

3 reasons I think the Aviva share price could double in 5 years

I'm not aiming to get rich quick, but today's Aviva share price makes me want to buy more and hold…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The easyJet share price fell 10% last week. Here’s what I’m doing!

Last week saw the easyJet share price continue its poor performance. Here, this Fool weighs up if this is an…

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

Are Royal Mail shares a buy today?

Royal Mail shares have experienced a drastic fall this year. In this article, Charlie Keough decides whether this is an…

Read more »

A bull outlined against a field
Investing Articles

2 FTSE 100 shares for the new bull market

I think the FTSE 100 is home to some promising companies such as these two I'd consider owning shares in…

Read more »