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3 Buy-Rated Stocks with Short Interest Above 10%

Because social-media-hype-triggered retail trading has been a trend this year, stocks possessing high short interest could attract significant attention and experience a short squeeze in the coming months. Continental Resources (CLR), DICK'S Sporting Goods (DKS), and Macy’s (M) each possess short interest of more than 10% and have the potential to deliver exceptional returns to investors in the event of a short squeeze. Let’s discuss.

While the meme stock mania appears to be waning, massive retail trading based on social-media hype may continue. Since the beginning of 2020, retail trading as a share of overall market activity has accelerated significantly. According to a Deloitte report cited by the Wall Street Journal, in January 2021 alone approximately six million Americans downloaded a trading app, and retail brokerages reported unprecedented average daily volumes for trading. The strategy in which retail investors band together on social-media forums like subreddit r/wallstreetbets led the shares of GameStop Corp. (GME) and AMC Entertainment Holdings, Inc. (AMC) and other meme stocks to skyrocketing rallies earlier this year.

With more rookie investors on the lookout for the next short-squeeze candidate, the market has witnessed dramatic moves in stocks with high short interest. In addition, work-from-home trends, higher personal savings levels, and access to zero-commission trading platforms should continue to drive social-media-savvy millennials to trading platforms.

Continental Resources, Inc. (CLR), DICK'S Sporting Goods, Inc. (DKS), and Macy’s, Inc. (M) each possess short interest of more than 10%. However, these shorted stocks could be highly rewarding for investors based on their short-squeeze potential.

Continental Resources, Inc. (CLR)

CLR in Oklahoma City, Okla., explores for, develops, and produces petroleum and natural gas with operations in the north, south, and east regions of the United States. The company supplies crude oil and natural gas crude oil refining companies, energy marketing companies, and natural gas gathering and processing companies. CLR’s proved reserves were 1,104 million barrels of crude oil equivalent (MMBoe) as of December 31, 2020.

CLR’s crude oil and natural gas sales increased 634.6% year-over-year to $1.28 billion in the second quarter, ended June 30, 2021. The company’s income from operations was $445.17 million, versus a $296.78 million operating loss in the second quarter of 2020. Its non-GAAP EBITDAX rose significantly year-over-year to $990.94 million. CLR reported $332.77 million in non-GAAP net income for this quarter, versus a $255.7 million  net loss in the prior-year period. Moreover, its cash and cash equivalents stood at $150.04 million for this quarter, compared to $6.66 million in the prior-year period.

A $0.67  consensus EPS estimate for the next quarter, ending September 2021, represents a 518.8% improvement year-over-year. Meanwhile, the $4.62 billion consensus revenue estimate for the current year indicates a 78.5% increase year-over-year. The stock has gained 128.2% year-to-date and 67% over the past six months.15.6% of  CLR’s floating shares have been sold short.

CLR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock also has an A grade for Momentum, and a B for Sentiment and Quality. In addition, we have also graded CLR for Value, Stability, and Growth. Click here to access all CLR’s ratings.

CLR is ranked #11 of 91 stocks in the Energy – Oil & Gas industry.

DICK'S Sporting Goods, Inc. (DKS)

DKS is a sporting goods retailer operating primarily in the Eastern United States. The Coraopolis, Pa.-based company sells footwear and accessories, sporting goods equipment, fitness equipment, hunting and fishing gear products, and apparel. In addition, the company operates through specialty concept stores, e-commerce websites, and a youth sports mobile app called GameChanger.

In June, the company expanded its nationwide footprint by opening seven stores, including its second DICK'S House of Sport in Knoxville, Tenn. These additions will enable DKS to offer top-of-the-line in-store services and exclusive offerings, multi-sport experiences, and elevated customer service.

Also, in May, DKS opened four stores in four states—one DICK'S Sporting Goods location, one Warehouse Sale location, and two locations of a new off-price store concept. The company also introduced six redesigned Golf Galaxy locations in eight additional Golf Galaxy locations. This expansion should allow DKS to provide its customers with an immersive golf experience and other updated in-store elements.

In its first fiscal quarter, ended May 1, 2021, DKS’ net sales increased 119% year-over-year to $2.92 billion, driven by a 115% increase in consolidated same-store sales. The company’s gross profit rose 396.3% from its  year-ago value to $1.09 billion. Its operating income came in at $475.81 million, versus a $186.17 million operating loss in the first quarter of 2020. Its net income amounted to $361.76 million over the period, compared to a $143.4 million net loss in the prior-year period. DKS’ EPS came in at $3.41 for this quarter.

Analysts expect DKS’ revenue for fiscal year 2022 to be $10.86 billion, representing 13.3% year-over-year growth. DKS has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is likely to increase 45.9% for the current year. Also, its stock’s price has surged 137.3% over the past year and 94.8% year-to-date. Of the company’s total floating shares, 15.2% have been sold short.

DKS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating which translates to Buy in our POWR Ratings system. It has an A grade for Momentum and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see DKS’ ratings for Stability, Sentiment, Value, and Growth here.

Of the 35 stocks in the A-rated Athletics & Recreation industry, DKS is ranked #15.

Macy's, Inc. (M)

M is an omnichannel retail organization that operates stores, mobile applications, and websites under the brand names Macy’s, Bloomingdale’s, and Bluemercury. The Cincinnati, Ohio company sells a range of merchandise, including apparel and accessories for men, women, and kids. It operated 727 store locations in 43 states as of January 31, 2021.

This month, M announced that it will redeem  $1.3 billion of senior secured notes due 2025 on August 17, 2021. This action will further enhance its long-term financial stability and help it deliver strong and sustainable shareholder returns.

In July, the company launched its new private brand ‘And Now This’ in ready-to-wear and men’s categories. This new assortment spotlights a unique and evolving style at affordable price points, which should help  M to inspire contemporary shoppers and drive more sales.

During its first fiscal quarter, ended May 1, 2021, M’s net sales surged 56% year-over-year to $4.71 billion. The company’s comparable-store sales grew 62.5% year-over-year on an owned basis, while its credit card revenues expanded 3.4% from the prior-year quarter. Its operating income totaled $215 million, compared to a $4.12 billion operating loss in the prior-year period. Also, M reported $103 million in net income for this quarter, compared to a $3.58 billion net loss  in the first quarter of 2020.     

M’s EPS is expected to increase 94.7% in the next quarter, ending October 2021 and 197.3% in its fiscal year 2022. A $22.04 billion consensus revenue estimate for the current year represents a 27.1% improvement from the same period last year. Over the past year, the stock has returned 171.1%. In addition, the stock has returned 29.7% over the past six months. Of its total floating shares, 13.6% have been sold short.

It’s no surprise that M has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, and Quality. Click here to see the additional POWR Ratings for M (Stability, Momentum, and Sentiment)

In the A-rated Fashion & Luxury group, M is ranked #35 of 64 stocks.

CLR shares fell $0.09 (-0.24%) in premarket trading Friday. Year-to-date, CLR has gained 132.60%, versus a 19.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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