Here’s a look at 3 biotech short squeeze candidates. For investors looking for short-term gains, technical analysis provides key insights on potential entry and exit points. However, over the years, various short-term trading strategies have emerged that deliver good results. Since 2021, exposure to stocks with high short interest has translated into massive returns in quick time.
The reason for focus on biotech stock is the point that the sector has been largely depressed. There seems to be ample trading and investment opportunities. For trading bets, I have screened biotech stocks with a high short interest as a percentage of free-float.
Of course, these are purely trading ideas and I would not take a big plunge in any of these biotech short squeeze candidates. In my view, potential sentiment reversal is impending and a 50% to 100% rally in quick time is likely.
Novavax (NASDAQ:NVAX) stock is among the top biotech short squeeze candidates. From all-time highs of $320 in February 2021, NVAX stock has plunged to current levels of $8.3. The big correction has been on the back of the company’s failure to create a market for its Covid-19 vaccine.
However, it’s worth noting that the stock is deeply oversold and has remained sideways in the last four months. I believe that the stock is poised for a reversal rally. I must add that NVAX stock currently has a short interest that’s abnormally high at 48.5% of the free-float. A massive short squeeze rally might be in the cards.
In terms of business development, Novavax is developing a pipeline of vaccines. The therapeutic areas include Covid-19, seasonal influenza, and malaria. However, most vaccines are under trial and I don’t see any catalyst for significant revenue growth in the coming quarters.
ProKidney (NASDAQ:PROK) stock is another name that looks attractive for a massive short squeeze. Amidst volatility, the biotech stock has trended higher by 13% in the last 12 months. With short interest at 20% of the free-float, I believe that a breakout on the upside is impending.
As an overview, ProKidney is a clinical-stage biotechnology company. The company provides a proprietary cell therapy platform that’s used for the treatment of chronic kidney diseases. The company believes that there is $80 billion in Medicare spending in chronic kidney diseases. This implies a big addressable market if the company’s product is commercialized.
The company’s clinical trials for various types of diabetic kidney diseases are ongoing. ProAct one and two are currently in phase three of clinical development. Positive progress related to these can be a big catalyst for massive stock upside. Therefore, besides the short squeeze factor, there is a strong fundamental reason to consider some exposure to PROK stock.
Arcutis Biotherapeutics (ARQT)
Arcutis Biotherapeutics (NASDAQ:ARQT) stock looks deeply undervalued after a correction of 65% in the last 12 months. However, it’s worth noting that even after the big downside, the short interest as a percentage of free-float is high at 33.5%. ARQT is therefore among the biotech short squeeze candidates.
As an overview, Arcutis Biotherapeutics is focused on development and commercialization of treatment for dermatological diseases. In August, the company announced a “strategic collaboration and licensing agreement for the development, manufacture, and commercialization of topical roflumilast in Greater China and Southeast Asia.”
This agreement provides the company with a big addressable market for immune-mediated skin diseases. The company will be receiving $30 million in upfront payment and an additional $64.25 million after regulatory milestones are achieved. The new treatment is likely to have a positive impact on ARQT stock. Considering the short interest, a massive squeeze is in the cards.
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.