3 Short-Squeeze Stocks to Keep an Eye on in Q4

Faisal Humayun

Sat, Oct 14, 2023, 6:00 AM 4 min read

In the last few years, short-squeeze stocks investing gained prominence in the euphoria of 2021. Retail investors targeted stocks that have a high short interest. When the stock started trending higher, shorts were covered, resulting in a massive rally in quick time. There were multibagger stories in a matter of weeks. Of course, GameStop (NYSE:GME) was the poster boy of the short squeeze rally.

Coming to the present times, the markets are certainly not in a phase of euphoria. However, stocks with high short interest continue to attract attention. Even from a technical perspective, oversold stocks with high short interest are likely to bounce back strongly.

It’s important to mention that the time horizon for investing in short-squeeze stocks is a few weeks to a few months. A 50% to 100% reversal rally in these stocks is a good time to exit, as most of these stories are average from a fundamental perspective.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Let’s discuss three short-squeeze stocks to watch for a big rally.

Lucid Group (LCID)

Lucid Air car of Lucid Automotive (LCID) Manufacturer at the event, EV Lucid Car Showroom.

Source: Khosro / Shutterstock.com

Lucid Group (NASDAQ:LCID) stock performance has been dismal, with a downside of 61% in the last 12 months. Sentiments remain weak even after the big downside, and the short interest in the stock is currently at 25% of the free float. I believe the sell-off is overdone, and LCID stock is poised for a quick rally of 50%.

The underlying concern for Lucid Group is cash burn through 2026 or 2027. That implies sustained dilution of equity. However, in the recent past, there have been some positives helping to reverse sentiments.

First, Lucid announced the opening of its first-ever international car manufacturing facility in Saudi Arabia. The plant has a capacity of 155,000 electric vehicles (EVs) per year. That will likely contribute to delivery growth in 2024 and beyond.

The company is also on track for an annual production guidance of 10,000 vehicles. The production of Lucid Gravity is expected in 2024, with deliveries planned for the following year. That will also contribute to delivery growth. Overall, some near-term positive news could trigger a rally from deeply oversold levels.

ChargePoint Holdings (CHPT)

A close-up of an orange ChargePoint (CHPT) station.

Source: JL IMAGES / Shutterstock.com

ChargePoint Holdings (NYSE:CHPT) stock is another name on a sustained decline. After the big plunge, a 50% rally cannot be ruled out. It’s worth noting that CHPT stock has a short interest of 26% even after the big correction.

Coming to the reasons for correction, sustained cash burn and intense industry competition are key headwinds. Further, ChargePoint announced a capital raise of $232 million. Dilution of equity is the reason for the recent downside.

Having said that, ChargePoint indicated that adjusted EBITDA will likely be positive by Q4 2024. That is good news, and if EBITDA losses narrow in the coming quarters, the stock is likely to react positively.

It’s worth adding here that I don’t see concerns from a revenue growth perspective. ChargePoint has a leading market position in North America and is already present in 16 European markets. With a big addressable market, top-line growth will remain robust.

Marathon Digital Holdings (MARA)

Macro view of miner working for bitcoins mine pool. Devices and technology for mining cryptocurrency. Mining cryptocurrency concept. MARA stock. Crypto mining.

Source: Yev_1234 / Shutterstock

It’s been a volatile year for Marathon Digital Holdings (NASDAQ:MARA) stock. The volatility has been in sync with the movement of Bitcoin (BTC-USD).

I believe Marathon has average fundamentals. If Bitcoin trends higher in the coming months, MARA stock could easily rally by 100%. Even with the recent correction, the short interest in the stock remains high at 28%.

Regarding the business, Marathon has been aggressively ramping up Bitcoin mining capacity. To put things into perspective, the company reported an operational hash rate of 7 exahashes per second (EH/s) as of Q4 2022. With capacity addition, the hash rate increased to 17.7 EH/s as of Q3 2023.

Once the current expansion is completed, the operational hash rate will swell to about 30 EH/s. That will position Marathon for robust revenue and cash flow growth in a scenario of Bitcoin surging higher. That seems likely with a Bitcoin halving due in 2024. Therefore, MARA stock seems poised for a massive rally and is among the short-squeeze stocks to watch.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.