The Stocks Could Get Short on Squeezed

unduhan-13Volatility is coming back to U.S. markets with a vengeance. After the longest sideways range in stock market history, equities broke hard to the downside on Friday, selling off 2.45%.

And they’ve kept up their streak of big moves ever since. The S&P 500 rebounded 1.47% Monday and then gave effectively all of that back with a correction in yesterday’s session. In short, stocks are still tracking sideways now, they’re just doing it in a much, much wider range.

That return to volatility is creating the potential for some big upside opportunities in some of Wall Street’s most-hated stocks. As it turns out, the big stocks that short sellers hate the most also tend to hand investors the biggest returns.

 

That’s not just my opinion .The data bear it out as well. Over the last decade, buying the most hated and heavily shorted large- and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten theS&P 500 by 9.3% each and every year.

Too much hate can spur a short squeeze, a buying frenzy that’s triggered by short sellers who need to cover their losing bets to exit the trade.

For our purposes, one of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

Today, we’ll replicate the most lucrative side of this strategy with a look at five big-name stocks that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in the months ahead.

The Boeing Company (BA) Stock Price | FindTheCompany

Up first on our list of heavily shorted large-cap stocks is aerospace giant Boeing  (BA) . Boeing started 2016 on a rough note, but shares have been rebounding alongside the rest of the market since February, up more than 19% on a total returns basis since shares found their bottom. That hasn’t stopped short sellers from piling in with bets against Boeing this year; with a short interest ratio of 11.1, it would take more than two weeks of nonstop buying pressure for short sellers to cover their bets at current volume levels.

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Boeing is best known for its line of large commercial airliners, a business that’s been enjoying some important long-term tailwinds lately. Boeing is also one of the largest defense contractors in the country, a business that the company has been moving away from as commercial aviation bears fruit and defense only becomes more competitive. Today, Boeing’s sales mix is about 70% commercial aircraft and 30% defense. While Boeing’s planes may be fast, the sales process is slow. Airlines mull over purchase decisions over very long timeframes, and new platforms take painfully long to get regulatory approval and make it to the customer. Boeing’s backlog of more than 5,700 aircraft provides some protection from the uncertainty surrounding that sales process; demand is high right now.

While the recent rout in crude oil prices has taken some of the pressure off of airlines, the industry understands that fleet upgrades are a critical part of surviving the next cyclical downturn in the airline business. That fact means that Boeing should have little trouble finding customers for its next generation of fuel efficient jets like the 737 MAX and the 787 Dreamliner.

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