Not every stock is going to be popular, but there are certain stocks that will be much more unpopular than others at any given time.
Right now, there are certain US equities that are out of favour with investors. This lack of popularity can be reflected in how many people are shorting a company. Read on to find out exactly what short selling means and the shares investors are betting against at the moment.
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What does it mean to short sell stocks?
Short selling investments is a slightly complex process. But the main point you need to know is that it is a way of betting against a stock. Short sellers borrow a security and sell it, hoping to buy it back later for less money. So, if you believe a share price is going to go down, short selling it would mean making money if it loses value.
However, this way of investing is a dangerous game. Because although you make money if the stock drops, you lose money if it goes up. When buying shares, the most you can lose is 100% of your initial investment. But because stocks can rise by more than 100%, your potential downside is unlimited if you short sell.
Nevertheless, this strategy of betting against certain shares does give us some good insight into what stocks are out of favour.
What are the 10 most shorted US stocks right now?
According to data from MarketWatch, these are the ten stocks seeing the most short-selling action in America at the moment:
Position | Company | Shares shorted |
1 | Cortexyme (CRTX) | 58.59% |
2 | AerSale (ASLE) | 41.20% |
3 | Pioneer Power Solutions (PPSI) | 40.92% |
4 | Blink Charging (BLNK) | 36.65% |
5 | Beyond Meat (BYND) | 36.18% |
6 | Intercept Pharmaceuticals (ICPT) | 34.54% |
7 | Big 5 Sporting Goods (BGFV) | 33.91% |
8 | Bit Digital (BTBT) | 33.54% |
9 | Lemonade (LMND) | 33.32% |
10 | Beam Global (BEEM) | 32.91% |
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Does this mean these stocks are bad investments?
Not necessarily. Sometimes short selling can create a bit of a self-fulfilling prophecy. When investors see a stock is being short sold, they may lose confidence and decide to sell their investment. Others may simply choose not to buy shares in that company if they don’t already own any.
Usually, there’s a reason people short-sell and bet against companies. But often, it’s more of a short-term play. The immediate future of a business may be bleak, but that doesn’t mean the firm won’t recover and perform well further down the road.
How should investors use this information?
It’s interesting to see which stocks are out of favour right now. However, this unpopularity can sometimes provide great opportunities to buy shares in companies that may have lots of room to grow.
If a stock is heavily shorted, it’s not a death sentence for the firm. So you may be able to find some absolute bargains in these areas that have been overlooked by impatient investors. When picking up investments this way, it’s always worth using a stocks and shares ISA account to make sure you don’t pay any tax on large gains.
Just remember that whether you pick popular or unpopular investments, gains are never guaranteed. You may get out less than you put in, so always research carefully. If you need some extra help with understanding the markets, make sure you check out our complete guide to share dealing.