The return of Keith Gill, the trader commonly known as Roaring Kitty, has sparked a great deal of enthusiasm. All sorts of meme stocks and heavily shorted companies are seeing their share prices rally on this development.
Companies aren’t necessarily good investments simply due to high short seller interest, however. In fact, many companies that are heavily shorted have major structural problems. Those include poor balance sheets, unprofitable operations or questionable levels of management competence.
However, sometimes short sellers get a company wrong and end up paying a heavy price.
These are three heavily sold short stocks now, with the short sale as a percentage of float clocking in above 10% in all three cases as of this writing. These three firms have all demonstrated consistent profitability and solid operations. They are set for major rallies as soon as industry conditions improve. And then the short sellers will scurry for cover.
GlobalFoundries (GFS)
New York-based GlobalFoundries (NASDAQ:GFS) is a large semiconductor foundry operator. The company serves a wide variety of both domestic and international clients.
Investors perceive Taiwan Semiconductor Manufacturing Company (NYSE:TSM) to be the dominant player in the foundry space. Indeed, TSM has more than 50% market share. But that still leaves a substantial chunk of the market to other players such as the #3 largest, GlobalFoundries.
In a time of increasing geopolitical uncertainty and worries around Taiwan’s political status, some semiconductor producers are looking to diversify their supply chains. GlobalFoundries can offer customers production from other more politically stable areas. Currently, it is developing its new state-of-the-art plant in Saratoga Springs, New York.
Short sellers have hounded GFS stock due to a downturn in parts of the chip industry, such as semiconductors for automobiles and industrial uses.
GlobalFoundries saw its profitability dramatically dip amid this down cycle. So bears are pressing their bets. However, analysts see the company returning to strong top- and bottom-line growth in 2025. And traders can front-run that turn — catch the bears napping — by getting into GFS stock now.
Mobileye Global (MBLY)
Mobileye Global (NASDAQ:MBLY) develops and deploys advanced driver assistance systems and autonomous driving technologies and solutions.
While full self-driving remains a significant technical challenge, driver assistance systems have already come a long way. Mobileye Global, being a leader in the field, has enjoyed robust growth. Revenues have risen from $967 million in 2020 to $2.0 billion in 2023. Also, the company reached profitability, helping ensure financial footing for long-term growth.
However, the auto market is currently in something of a downturn, particularly for more cutting-edge electric vehicles (EVs) and smart cars. As a result, Mobileye Global is looking at a 9% revenue decline this year as excessive inventory levels are harming the industry.
Therefore, short sellers are circling the wagons, with MBLY stock down 40% over the past 12 months. However, they may turn out to be a foolish bet. Mobileye Global is slated to return to strong revenue and earnings growth next year. Thus, the share price should respond positively as the business’ momentum accelerates.
Albemarle Corp. (ALB)
Albemarle Corp. (NYSE:ALB) is one of the world’s leading lithium and specialty chemical companies. Headquartered in North Carolina, it has operations spanning the U.S., Chile and Australia.
ALB stock has declined more than 40% over the past 12 months and shares have fallen by nearly two-thirds from their all-time highs. This comes primarily due to a sharp downturn in the Chinese battery market. As EV demand growth has slowed, battery inventories have climbed. So overcapacity concerns abound, leading to an alarming decline in lithium pricing.
Specifically, Chinese lithium futures contracts have slumped more than 75% since their 2022 peak. Yet, lithium prices had skyrocketed in 2022 amid a profound shortage.Today’s prices, while far off their peak, are still around where they traded back in both 2018 and 2021.
Indeed, Albemarle Corp. was a successful and profitable business in prior times of lower lithium pricing. The company won’t be earning the sort of outsized profits it generated over the past two years again in the near-term.
Moreover, lithium prices will undoubtedly remain volatile. Currently, short sellers are profiting from the sharp downturn in the sector. But on any signs of positive momentum in the Chinese economy or the lithium market more generally, ALB stock could be set to soar. With such heavy short bets in place now, shares will charge right back up on any positive developments.
On the date of publication, Ian Bezek did not have (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.