5 Short Squeeze Candidates With Catalysts For Rebounds

Key Points

• The list of high short-interest stocks is a treasure trove of opportunity for bullish and bearish traders. 
• These stocks have high short interest and potential catalysts for short squeezes. 
• Regardless of the squeeze, these are high-quality names worth buying at low prices. 

A look at the short sale lists is always interesting because there are usually as many names worthy of buying as selling. Marketbeat.com's list of high-short-interest stocks is no different than usual in early October; many names are trending lower for a reason, but also a few potential candidates for a short squeeze. 

Not only do stocks like Enovix NASDAQ: ENVX have high short interest, but they also have potential catalysts to drive them higher, along with the support of analysts and institutions. Near-term headwinds may give the shorts reasons to sell and even opportunities to profit, but the converse is true for bulls. Investors looking to build positions in high-quality names can target these stocks, buy them when they are down, and build winning positions over time. They may even profit from a short squeeze. 

Enovix Is Restructuring to Focus on Ramping to Scale

Enovix is an emerging leader in the silicon anode lithium-ion battery industry with a short interest above 30% and rising in mid-September. The short interest may have risen since the restructuring news, but it does not change the outlook. The company's refocus and restructuring result from talks with major customers, including mobile OEMs and the US Army. The refocus will be from making standard battery sizes for many customers to specialized batteries for a few, which is seen as the quickest, most efficient path to scale. 

Manufacturing will shift to Asia, which was the original goal. The Fab 1 facility will turn into a product laboratory. The bad news is that production was halted in Q3 to allow for the changes, but the projected revenue is sufficient to surpass the consensus at the time of release. CEO Dr. Raj Taluri says they expect to recognize about $200,000 in revenue, about a 5X increase sequentially. Results are due in late October. 

Kohl's: Off-Price Retail at a Deep Discount 

Kohl's NYSE: KSS shares are down YOY due to sluggish consumer trends, revenue decline, inventory issues, and an unexpected CEO switch. But that's all in the past. The company has made large strides since, including inventory reset and improved profitability. The consumer shift to off-price was slow to develop but appears to be gaining momentum, given results from the sector in Q2. Assuming those trends gain momentum in Q3 and Q4, Kohl's should easily surpass the analysts' consensus. 

More importantly, Kohl's dividend outlook will improve. Kohl's shares yield nearly 10%, and there is some concern about sustainability despite management's intent to sustain it, the balance sheet, and the outlook for earnings and earnings growth. Kohl's was more than 20% short in mid-September. 

RH and Williams-Sonoma: eCommerce Trends Normalizing, Margins Widen

RH NYSE: RH and Williams-Sonoma NYSE: WSM stock prices and their competitors in the home goods industry corrected over the past year on slowing sales, industry normalization, and faltering analysts' sentiment. However, the bottom is in the market. This sector's Q2 results include outperformance, improved guidance, better-than-expected guidance, and wider margins. The news resulted in a brightening of analysts' sentiment, with the consensus price target for both stocks trending higher. 

The analysts are least bullish about Williams-Sonoma and most about RH, but sentiment in both stocks is firming. Potential catalysts include continuing recent trends in the Q3 and Q4 results. These retailers are uniquely positioned as eCommerce-centric in a world where eCommerce holiday sales are expected to outperform the broad category by 3:1. RH and WSM are 19% and 15% short as of the last report. 

Wolfspeed, Inc: Getting Up to Speed 

Wolfspeed, Inc. NYSE: WOLF is another next-gen product trying to gain traction. The company makes silicon carbide semiconductors, significant to the 4th industrial revolution. Silicon carbide chips are limited in their applications but can operate at higher power and temperatures, perfect for industrial, EV, IoT, and always-on devices. The stock is down on sluggish sales, but the outlook remains bright. Demand for these chips should grow as the cloud, AI, and automation gain traction. Analysts see this stock advancing more than 20% at the low end of their target range. Shares of WOLF were 13% short in mid-September.