There comes a time every once in a cycle when the market gets too invested in either a bullish or bearish view, and just like any other physical marketplace, the stock market can then trigger a major shift to the opposite end of this concentrated view. Investors can imagine the bottlenecks and mania that would be caused by this shift, which is why keeping track of sentiment gauges is so important.
When it comes to individual stocks, one of these gauges can be the amount of short interest or how many of the company’s shares are held in short positions. Now, short selling is a complex process of borrowing stock to sell (hence being short the stock), which would then involve buying back that same stock in order to close the position. This is why stocks with high short interest are important to watch since a turn to the upside could trigger massive buying activity.
That is what’s known as a “short squeeze,” where short-sellers hit the maximum amount of pain and are then forced to bail on their short positions, which, as explained, involves buying the stock. Today’s list of high short-interest stocks could set up investors for major runs to the upside, including names in the basic materials sector like Alcoa Co. (NYSE: AA), United States Steel Co. (NYSE: X), and even a retail stock like Best Buy Inc. (NYSE: BBY).
Why Alcoa Stock Could Squeeze Sellers Soon
Over the past month, manufacturing PMI data indicates that automotive demand is rebounding despite concerns over recent trade tariff announcements from President Trump. Investors see signs of recovery as the industry prepares for increased demand.
This is where Alcoa stock comes into play, as a major aluminum manufacturer and supplier riding on the tailwinds of the automotive expansion. This is a theme that some Wall Street analysts have already gotten behind on, as investors can see as recently as late January 2025.
Those from Bank of America have not only reiterated their buy rating for Alcoa stock but also decided to keep the company’s valuation at a high of $58 per share. This new view would call for the company to make a new 52-week high and suggest a net rally of as much as 60% from where it trades today.
Considering that Alcoa already trades at a low of 76% of its 52-week high, it would seem that the bears are at risk. They have run up the company’s short interest to a high of $301 million today. This can be the assumption since the upside seems much bigger than the potential move lower from here.
To sum up, investors can note the recent 0.6% boost in holdings in Alcoa stock from the Vanguard Group. While this may not seem like much on a percentage basis, it did bring their net position to a high of $981.5 million today, or 10% ownership in the company.
A Tariff Boost for United States Steel
While most would say that tariffs are bad for domestic manufacturers, others will realize that the need to diversify costs from trade could turn capacity demand inward, which is where domestic players like United States Steel could shine.
That might be the government's stance by blocking Japanese steelmaker Nippon Steel Co. (OTCMKTS: NISTF) from buying out United States Steel. Knowing that the company trades at 80% of its 52-week high, there is no incentive to sell, especially as the industry data starts to turn bullish again.
This is why, even though short interest remains high at $488 million today, up to 49% of this balance has contracted over the past month alone, a clear sign of bearish capitulation ahead of a potential breakout in the stock. The timing couldn’t have been better either, as Vanguard also built up a 9.1% stake in this stock, worth up to $698.8 million today.
Could Best Buy Return to Former Glory?
The current 7.2% short interest would say no, but then other factors would back up a potential run higher in Best Buy stock. One of them is the earnings per share (EPS) forecast coming out of Wall Street analysts for the fourth quarter of 2024, shooting as high as $2.69.
That would more than double the latest quarter’s $1.26 result, and considering that EPS is a major driver of stock prices, Best Buy should somewhat follow in this price action. Other analysts would share that view, given that Best Buy’s consensus price target is set to $101.7 per share, daring it to rally by 17.2% from where it trades today.
If the state of the consumer is a concern for investors today, then they can also look past this upside and into the stability offered through a $3.76 payout per share, which at today’s prices would translate to an annualized dividend yield of up to 4.33%.
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