3 Most-Shorted Stocks to Buy That Have Bottomed

  • The pain in these most-shorted stocks is setting them up as actionable buys.
  • Upstart Holdings (UPST): This is a baby-with-the-bathwater post-earnings opportunity.
  • Tesla (TSLA): Shares have more than $20 billion in bearish short interest at risk.
  • Chewy, Inc. (CHWY). This pet-supplies company enjoys a solid industry position and lifetime bottoming to support shares.

Source: Borka Kiss / Shutterstock.com

Bulls are doing the squeezing in Friday’s session, with stock prices inflating on the back of wildly oversold conditions. And while one day doesn’t necessarily make a trend, buying into a more meaningful bottom is looking attractive in some of the market’s most-shorted stocks.

Prices have been scorching higher everywhere this year. From apples at the grocer to gas at the pump or those shoes on Zappos, it’s been an expensive environment for consumers and businesses alike due to inflation and supply chain snarls tied to Covid-19 and Russia.

But for riskier assets it’s been a very different story. In those more enduringly hated companies with high short interest, bears have been making themselves especially at home in 2022.

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Today though, let’s examine three of the market’s most-shorted stocks to buy. Their shares reveal price charts ready for investors to bullishly profit.

UPST
Upstart Holdings
$38.13
TSLA
Tesla
$769.59
CHWY
Chewy, Inc.
$27.97

Most-Shorted Stocks to Buy: Upstart Holdings (UPST)

Upstart (UPST) forming lifetime double bottom with actionable daily chart climatic island reversal pattern
Source: Charts by TradingView

Upstart Holdings (NASDAQ:UPST) is the first of our most-shorted stocks to buy. UPST stock has lost favor on Wall Street, except for the attentions of its 30% bearish short interest. That trend has been a costly one to ignore for bullish investors.

This week, the cloud-based artificial intelligence (AI) loan referral company saw its shares more than halved in value despite posting its seventh consecutive profitable quarter and fourth straight quarterly report with triple-digit year-on-year revenue growth.

Behind the buyer’s remorse, Upstart guided full-year revenues lower by 11% to mid-double-digit sales growth.

Management also offered some token bearish-sounding dialogue in a viciously intolerant market looking for any reason to sell. And the combination resulted in bears ruling the day and analysts slashing price targets, setting themselves up to look even sillier.

With shares off as much as 93.50% this week from October’s all-time-high and putting together a lifetime double bottom with high volume and an island reversal pattern, this most-shorted stock offers an attractive spot to buy long-term growth at a significant discount.

Tesla (TSLA)

Tesla (TSLA) putting together corrective high level "W" or double bottom
Source: Charts by TradingView

Tesla (NASDAQ:TSLA) is the next of our most-shorted stocks to purchase.

The world’s largest electric vehicle manufacturer isn’t a heavily-bet-against name in percentage terms. But its near-3% short interest is the largest in the market in dollar terms by a wide margin, with more than $20 billion in bets wagered against TSLA stock.

Today, unless we’re going into a global recession so severe as to throw transportation back to the stone ages, it’s time to apply the brakes on the bears’ control.

Technically, Tesla is putting together a higher low, double bottom variation on the weekly time frame. The bullish pattern low follows a failed cup base and bear market cycle of around 48% in depth.

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At the moment, TSLA’s weekly hammer candlestick and stochastics haven’t confirmed a pattern low. But that’s anticipated to happen next week. Should those conditions be met, a summer-dated out-of-the-money bull call spread is one way to drive faster profits alongside controlled risk.

Chewy, Inc. (CHWY)

Chewy, Inc. (CHWY) lifetime double bottoming pattern
Source: Charts by TradingView

Chewy, Inc. (NYSE:CHWY) is the last of our most-shorted stocks buy. The popular online pet supply retailer has long been a trendy name with bears, and shorts today make up around 28% of CHWY stock’s float.

Some of those bets wagered against Chewy have profited handsomely given shares have retreated as much as 81% at this month’s low from last February’s peak of $120. But today, CHWY’s doghouse-like price action is set up for a new bullish cycle.

Technically, as the monthly chart reveals, shares are currently forming an oversold doji candlestick that’s challenging its prior all-time lows. The chart action has the earmarks of a lifetime double bottom in the making.

Coupled with Chewy’s dominant position in a growing pet care market, a very modest large-cap valuation of just $12 billion, a puny price multiple of just 1.22 times sales and a cash-flow-positive business, things look interesting.

And bottom line, over the long term that bodes incredibly well for this most-shorted stock’s chances to learn a new bullish trick.

On the date of publication, Chris Tyler 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.

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