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18 of the Market's Most Heavily Shorted Stocks

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01.08.2020

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Short selling gets a bad rap. Short sellers are sometimes seen as vultures, gleefully making money during the darkest times for some companies. And when times get tough, they are often smeared as manipulators of the market.

However, short selling has a long history, and academic research proves these tactics are an important part of price discovery for markets.

So what is short selling? Put simply, it's borrowing shares of a stock or ETF so you can sell them first, then hoping it declines so you can buy shares back at a lower price in the future, thus generating a profit. And rather than moralizing over the nature of it, wise investors should view short selling as one more data point to explore in their research, and view heavily shorted stocks as particularly interesting.

By comparing the raw number of shares sold short with the overall number of shares a company has available to trade, investors can get a quick take on what percentage of the current interest in the stock is coming from bearish investors vs. bullish ones.

It's worth pointing out that like any measure, short interest in a stock is not a foolproof sign it will stumble. There is ample evidence that bearish investors can be wrong. And unlike buy-and-hold investors who can just sit on a paper loss and hope conditions change, short-selling bears who booked the sale first must buy shares back for steep losses and cover their risky trade whether they like it or not. This can lead to a phenomenon known as a "short squeeze," in which buying begets more buying as more short sellers are forced to bail out of their positions.

Here are 18 of the most heavily shorted stocks on Wall Street right now. For each of these companies, total short interest by negative investors represents at least a third of the "float," or shares available for regular trading on public markets. But in many cases, it's far more.

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Diagnostics and pharmaceutical firm Opko Health (OPK, $5.91), one of the largest stocks on this list by any measure, also boasts one of the highest raw totals of short interest: nearly 137 million shares are promised to bearish investors betting on the downside. That represents nearly 4 in 10 shares in the "float," or shares available for trading – lower on a percentage basis than other stocks on this list, but a significant tally nevertheless.

Opko has ramped up steadily in 2020 after starting the year at under $2 a share, to its price at nearly $6 per share, as Wall Street fell in love with the short-term potential of its clinical laboratory and testing services amid the coronavirus pandemic. Much of this surge has been priced in and the realities of OPKO's capacity have been revealed, so there are clearly those who are now expecting the stock to take a tumble from its current perch near two-year highs.

OPK shares have shaken out a few short sellers, however. Opko's percentage of tradable shares held short was around 50% recently, but the stock's more recent success has knocked that number down to 36%.

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One of the most popular names among short-sellers in the last few years has been embattled department store Macy's (M, $6.22).

A host of trends have worked against this once-iconic brand in recent years. That includes a general move towards more spending online and a specific company-wide plan to cut back in recent years on both physical locations and capital spending to keep the remaining Macy's stores looking fresh.

That would be a bad enough situation, but the COVID-19 pandemic in 2020 has created even bigger headaches for retail. Aside from the practical concerns about in-store shopping and weaker consumer confidence, the reality is that women's apparel, accessories and cosmetics make up more than 60% of sales – and with remote work causing many professionals to spend less time in expensive shoes and more time in yoga pants, things are looking nasty for Macy's stock.

Although shares have already cratered from highs of more than $23 a share last summer to the $6 range at present, UBS recently downgraded the stock to Sell with a meager $3 price target that will surely energize the bears.

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At first blush, Madrigal Pharmaceuticals (MDGL, $106.95) doesn't look quite as bad as many of the rather disappointing companies on this list. Like many clinical-stage biopharmaceutical companies, MDGL does run at a steep loss as it focuses on the development and commercialization drugs for various cardiovascular and liver conditions. But again, that's not altogether uncommon, and the raw short interest of less than 3 million shares at present doesn't seem particularly noteworthy.

The challenge, however, is that MDGL stock isn't very common. There are only about 15.4 million total shares outstanding for this company, and about two-thirds of that is tied up via insiders and institutions that aren't actively trading. As a result, Madrigal is a good example of a stock with a small "float" of available shares – and when even a modest amount of negative traders target the stock via short-selling, they can have significant influence on pricing.

But shares have jumped more than 17% in 2020; people short selling Madrigal have been on the wrong side of the trade so far. Thus, MDGL is among the most heavily shorted stocks demonstrating that significant........

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