A curious outcome of the turmoil ushered in by the coronavirus pandemic was the historic tussle between retail and institutional investors. The pandemic made major stock market indexes tumble in the double digits and created an economic crisis that reminded many of the Great Recession of 2008. To help people during the crisis, the U.S. government stepped in and started giving generous stimulus checks to people so that they could make rent and put food on their tables. Another side effect of this was that retail investors were flush with cash and they started pouring funds into the stock market.
According to data from the Nasdaq's economic research division, before the pandemic, retail investing in the stock market had accounted for a tiny portion of all stocks traded in U.S. markets, with total weekly buying sitting at just $1 billion. During the pandemic, however, this more than doubled to account for more than $2 billion in stock purchases per week. In terms of daily traded volume, between March 2020 - the first stock market crash - and February 2022, retail volume stood at a whopping $175 billion on average. During this time period, daily retail value traded jumped to touch almost $3 billion during the meme stock frenzy, where stocks saw their fortunes rise and fall at the mercy of social media platforms such as Reddit and Twitter.
This frenzy was right at the time when one of the largest short squeezes in U.S. history took place. If you had not heard of GameStop Corp. (NYSE:GME) for its collection of video games and other personal computing accessories, you're bound to have heard it due to the tussle between institutional short sellers and retail investors teaming on Reddit. In short, the great GameStop short squeeze of 2021 took place in January 2021 when the firm's shares, which closed at $19.94 on January 11 jumped to an absolutely beastly $347.51 in just 26 days - to mark a whopping 1,643% increase during the month. This price jump was unrelated to any improvement in the video game equipment retailer's financial fundamentals and was driven purely by retail investors teaming up to take the big short sellers down as a research note predicted that the share price would drop. During this time period, GameStop's share price would jump to $483 as well - an all time new record.
But you might be wondering what is a short squeeze? Well, in the world of investing, there are two positions that you can take for a stock. One of these is called a 'long' and it's simply buying shares with the hopes of them appreciating in the future. The other more controversial one is short selling. Short selling refers to the practice of borrowing a company's shares to sell them in the market and buying them once the share price drops. The difference between the selling and purchasing price is the investor's profit as the borrowed shares are returned along with a borrowing fee that depends on the short interest in the stock in question.
However, GameStop isn't the only riveting tale of short selling over these past few years. Another story is of Nikola Corporation (NASDAQ:NKLA) - an American company developing hydrogen powered trucks. Nikola went public in March 2020 and saw its value jump to $16 billion in the market - orders of magnitude higher than its revenue. However, the company's fairy tale ended when Hindenburg Research - a specialist firm that investigates fraudulent companies and then shorts their shares - published a report in September 2020. This report made startling claims that Nikola's demonstration test simply involved an unpowered vehicle rolling downhill (!) and that the firm's former chief executive officer had lied about his company producing hydrogen that was 81% cheaper than the market, and had appointed his brother who was a construction worker as director of hydrogen production and infrastructure. The resulting bloodbath was massive and Nikola's shares dropped from a peak of $65.90 in June 2020 to $13.75 by the end of the year. The shares currently trade at around $1.20.
Moving towards more recent times, Nikola would prove to be only one of Hindenburg's marks. The short seller made global headlines earlier this year when it gutted India's richest man - and the world's third richest - Gautam Adani. The short seller called Mr. Adani the 'biggest conman in corporate history' as it alleged that key companies of the multi billion dollar Adani Group had pledged their own shares as collateral for loans, outlined that the group's key executives were all members of the Adani family, and further alleged that Mr. Adani's elder brother Vinod or his associates controlled 38 shell companies that were beefing up the balance sheets of listed Adani companies and were part of an investigation by the Indian stock market regulators. Even though the Adani Group denied the allegations and called them an attack on India itself (Mr. Adani is a close associate of Indian Prime Minister Narendra Modi), the damage had been done as from being the world's third richest man, Mr. Adani (still a billionaire) dropped to being the 25th richest according to Forbes Magazine. Talk about David vs Goliath. As for the Adani Group, its shares are down 53% year to date.
As for the retail investors, it's looking as if high inflation and 2022's stock market bloodbath have taken the shine out of their investing. A January 2023 report from Goldman Sachs highlighted that retail net selling activity accelerated during the second half of 2022 and reversed all net buying in stocks between 2019 and 2021. Seems like the beast of inflation was enough to tame the retail investors too, just as it tamed Federal Reserve who took the pedal off the metal when it came to free money.
With these details in mind, it appears there's some magic to short selling as well. So let's take a look at some firms that are seeing growing short seller interest. Some top picks are Secoo Holding Limited (NASDAQ:SECO), Tenax Therapeutics, Inc. (NASDAQ:TENX), and Ensysce Biosciences, Inc. (NASDAQ:ENSC).
To compile our list, we used a stock screener to identify 100 companies with the highest percentage of short interest change as of March 2023. Then, their previous short interest percentage was subtracted from the current short interest percentage and the firms were ranked through this criteria. Short interest is the number of shares sold short and short interest percentage divides this by the total outstanding shares. The top ten companies that are recently under short seller gaze are listed below.
Rivian Automotive, Inc. (NASDAQ:RIVN) is an American firm headquartered in Irvine, California. It makes and sells electric trucks and sport utility vehicles. As of mid March 2023, there are 34 million shares of the firm that have been sold short.
By the end of last year's fourth quarter, 29 of the 943 hedge funds polled by Insider Monkey had invested in Rivian Automotive, Inc. (NASDAQ:RIVN). The firm's largest hedge fund investor is George Soros' Soros Fund Management which owns 14.3 million shares that are worth $264 million.
Secoo Holding Limited (NASDAQ:SECO), Tenax Therapeutics, Inc. (NASDAQ:TENX), and Ensysce Biosciences, Inc. (NASDAQ:ENSC) are met by Rivian Automotive, Inc. (NASDAQ:RIVN) on our list of stocks popular with short sellers.
Bellerophon Therapeutics, Inc. (NASDAQ:BLPH) is an American healthcare company that is headquartered in Warren, New Jersey. It develops treatments for high blood pressure resulting from lung and heart diseases.
Three of the 943 hedge funds part of Insider Monkey's Q4 2022 survey had held a stake in the company. Out of these, Bellerophon Therapeutics, Inc. (NASDAQ:BLPH)'s largest investor is Jim Simons' Renaissance Technologies which owns 171,799 shares that are worth $155,000.
TPI Composites, Inc. (NASDAQ:TPIC) is a heavy machinery manufacturer based in Scottsdale, Arizona. It makes and sells products such as wind blades to customers all over the world. The firm saw its short interest rise by three million as of the latest trading period.
Insider Monkey took a look at 943 hedge funds for their fourth quarter of 2022 investments and found out that 23 had owned TPI Composites, Inc. (NASDAQ:TPIC)'s shares. Israel Englander's Millennium Management is the firm's largest investor in our database as it owns 889,468 shares that are worth $9 million.
INDUS Realty Trust, Inc. (NASDAQ:INDT) is a real estate investment trust based in New York, New York. It owns properties in several American states and saw its short interest percentage grow from 19.27% to 29.65% as of mid March 2023.
12 of the 943 hedge funds surveyed by Insider Monkey during last year's fourth quarter had held a stake in INDUS Realty Trust, Inc. (NASDAQ:INDT).
BigBear.ai Holdings, Inc. (NYSE:BBAI) is an information technology company headquartered in Columbia, Maryland. It provides artificial intelligence and machine learning platforms, for a variety of purposes such as business analytics. There are 3.27 million shares that have been sold short of the company.
Insider Monkey's Q4 2022 survey of 943 hedge funds revealed that 18 had invested BigBear.ai Holdings, Inc. (NYSE:BBAI).
Secoo Holding Limited (NASDAQ:SECO), BigBear.ai Holdings, Inc. (NYSE:BBAI), Tenax Therapeutics, Inc. (NASDAQ:TENX), and Ensysce Biosciences, Inc. (NASDAQ:ENSC) are some stocks on the short seller radar.
