Month: May 2023

Why Buy Stocks that Pay Dividends Quarterly or Monthly when You Can Get Dividends Weekly

by Fred Fuld III

Would you rather have a stock that pays quarterly, monthly or weekly? Do you know what the advantages are of receiving your dividends at a faster frequency?

Reinvestment Opportunities: With weekly dividends, investors have the opportunity to reinvest their earnings more frequently. By reinvesting dividends promptly, investors can take advantage of compounding returns and potentially accelerate the growth of their investment portfolio. This can be especially beneficial for long-term investors aiming to maximize their returns over time.

Dollar-Cost Averaging: weekly dividends can facilitate a strategy called dollar-cost averaging. This strategy involves investing a fixed amount of money at regular intervals, regardless of the investment’s price. With weekly dividends, investors can consistently reinvest funds, buying more shares when prices are lower and fewer shares when prices are higher. This approach can help smooth out the impact of market fluctuations and potentially lead to better average purchase prices.

Flexibility and Liquidity: weekly dividends provide investors with greater flexibility and liquidity. With more frequent dividend payments, investors have more control over their cash flow and can react to changing financial needs more effectively. It allows for easier adjustments to spending, reinvestment, or capital allocation strategies as circumstances evolve.

Reduced Dependency on Other Income Sources: For retirees or individuals relying heavily on investment income, receiving dividends weekly can help reduce reliance on other income sources such as Social Security or pensions, which are paid monthly. This diversification of income streams can enhance financial security and independence.

Psychological Benefits: Receiving dividends every month can provide a sense of accomplishment and satisfaction. It reinforces the tangible benefits of investing and can help investors stay motivated and engaged with their investment strategy.

There are actually numerous investment options available for individuals seeking regular dividend payments, ranging from stocks and ETFs to CEFs, REITs, and trusts. While many of these instruments pay dividends on a quarterly or monthly basis, there is also an alternative for those who prefer weekly payouts. One such option is the SoFi Weekly Dividend ETF (WKLY), a convenient investment vehicle designed to handle weekly dividend payments on behalf of investors.

The SoFi Weekly Dividend ETF comprises a well-diversified portfolio consisting primarily of large-cap and medium-cap dividend-paying stocks, with a focus on U.S.-based companies. Additionally, it includes select international companies to further enhance the fund’s diversification. The primary objective of this ETF is to ensure consistent weekly dividend distributions to its shareholders.

At present, the ETF offers a respectable yield of 3.16%, providing investors with an attractive income stream. It boasts total net assets of $9.44 million. Furthermore, the expense ratio for this fund is 0.49%, which is relatively reasonable when compared to similar investment vehicles.

Interestingly, the SoFi Weekly Dividend ETF is not the sole weekly dividend ETF available to investors. The same fund manager also offers the SoFi Weekly Income ETF (TGIF), which also provides weekly dividend payments. However, unlike the WKLY ETF, the TGIF ETF primarily invests in a mix of investment-grade and junk bonds.

The SoFi Weekly Income ETF, with a higher yield of 4.58%, may appeal to individuals seeking higher income potential. It currently holds total net assets amounting to $16.59 million and has an expense ratio of 0.59%. This ETF was established in 2020, offering investors a relatively new but potentially lucrative investment opportunity.

Both the WKLY and TGIF ETFs may serve as valuable additions to an income-oriented investment portfolio. However, it’s essential to be aware of the associated risks when investing in these funds. As with any investment, there is always the possibility of market volatility, potential losses, and fluctuations in dividend payments. It is crucial to thoroughly research and understand the underlying holdings, as well as carefully evaluate the fund’s performance and track record.

In conclusion, for individuals seeking regular weekly dividend payments, the SoFi Weekly Dividend ETF (WKLY) and the SoFi Weekly Income ETF (TGIF) provide convenient investment options. These ETFs offer diversified portfolios with different underlying assets, enabling investors to select an option that aligns with their income objectives and risk tolerance. However, it’s important to consider the potential risks associated with these investments and conduct thorough due diligence before making any investment decisions.

Disclosure: Author didn’t own any of the above at the time the article was written. These ETFs are extremely low cap, and should be considered extremely speculative.

Closed End Bond Funds Selling at a Discount Yielding Over 10% Paying Monthly

by Fred Fuld III

Closed-end funds (CEFs) are investment vehicles that pool money from multiple investors to invest in various assets such as stocks, bonds, or other securities. Unlike mutual funds or exchange-traded funds (ETFs), CEFs have a fixed number of shares, which are traded on stock exchanges like individual stocks.

How CEFs Work

Here’s how closed-end funds work:

Initial Public Offering (IPO): When a closed-end fund is launched, it goes through an IPO where a fixed number of shares are issued and sold to investors.

Active Management: CEFs are typically actively managed by professional fund managers who make investment decisions on behalf of the fund. Their goal is to generate returns by investing in a diversified portfolio of assets.

Stock Exchange Trading: Once the IPO is complete, the shares of the CEF are listed on a stock exchange, allowing investors to buy or sell shares throughout the trading day. The price of CEF shares is determined by supply and demand dynamics in the market and may deviate from the fund’s net asset value (NAV).

Leverage: Some closed-end funds may use leverage by borrowing money to make additional investments. This can potentially enhance returns but also increases risk.

Advantages of CEFs

Now, let’s discuss why it may be advantageous to invest in CEFs selling at a discount:

Buying Below Net Asset Value (NAV): CEFs often trade at a price that is lower than their NAV per share. This discount can occur due to market sentiment, investor behavior, or perceived concerns about the fund. Investing in CEFs at a discount means you can acquire a dollar’s worth of assets for less than a dollar.

Potential for Capital Appreciation: If a CEF’s share price eventually converges with its NAV, investors who purchased shares at a discount can benefit from capital appreciation. As the discount narrows or disappears, the value of their investment increases.

Higher Income Yield: CEFs typically distribute income generated from their underlying assets to shareholders. Buying CEFs at a discount can result in a higher income yield since the distribution is calculated based on the NAV, while the purchase price is lower.

Diversification and Professional Management: CEFs offer diversification benefits by investing in a portfolio of different securities. Moreover, they are managed by professional fund managers who employ their expertise to select investments, potentially generating attractive returns.

Potential for Active Trading Strategies: The market price of CEF shares can deviate significantly from the underlying NAV, providing opportunities for active traders to capitalize on these price discrepancies through short-term trading strategies.

It’s important to note that investing in CEFs involves risks, such as market volatility, interest rate fluctuations, and the performance of the underlying assets. Additionally, the discount at which a CEF trades may persist or widen, resulting in potential losses for investors. Therefore, thorough research and consideration of individual CEFs and their investment strategies is crucial before making investment decisions.

Closed End Bond Funds

Closed-end bond funds are a type of closed-end fund that specifically invests in a portfolio of bonds or other fixed-income securities. These funds pool money from multiple investors to invest in a diversified range of bonds, including government bonds, corporate bonds, municipal bonds, or even international bonds.

Here are some key characteristics of closed-end bond funds:

Income Generation: The primary objective of closed-end bond funds is to generate income for investors. They typically invest in fixed-income securities that pay regular interest or coupon payments. The income earned from these bonds is then distributed to shareholders in the form of regular dividends.

Interest Rate Sensitivity: Closed-end bond funds are sensitive to changes in interest rates. When interest rates rise, bond prices tend to fall, which can negatively impact the net asset value (NAV) of the fund. On the other hand, when interest rates decline, bond prices tend to rise, potentially leading to an increase in the NAV.

Portfolio Diversification: Closed-end bond funds provide investors with a diversified portfolio of bonds. By investing in a variety of issuers, sectors, and maturities, these funds aim to mitigate risk and reduce the impact of any individual bond’s performance on the overall fund.

Credit Quality: Closed-end bond funds may invest in bonds with different credit ratings, ranging from high-quality investment-grade bonds to lower-rated or even non-investment-grade bonds (also known as junk bonds). The credit quality of the bonds held by the fund affects the overall risk profile and potential return of the fund.

Leverage: Some closed-end bond funds may use leverage to enhance returns. They borrow money to invest in additional bonds, aiming to generate a higher income for shareholders. However, leverage also amplifies risk, as it can magnify losses if the market moves against the fund’s positions.

Discount or Premium: Like other closed-end funds, closed-end bond funds can trade at a price that is either below (discount) or above (premium) their NAV per share. The discount or premium reflects market sentiment, supply and demand dynamics, and investor perception of the fund’s performance and prospects.

High Yield, Payable Monthly, Selling at a Discount to NAV

Here are some examples of bond CEFs that have a high yield in excess of 10%, pay dividends monthly, and are selling at a discount to Net Asset Value.

CompanySymbolYieldPeriodicDiscount to NAV
Highland Funds I – Highland Income FundHFRO10.36%Monthly-33.23%
FS Credit Opportunities Corp.FSCO13.55%Monthly-32.20%
High Income Securities FundPCF11.84%Monthly-16.69%
Legg Mason BW Global Income Opp Fund BWG12.80%Monthly-15.92%
Virtus Convertible & Income Fund IINCZ12.90%Monthly-15.71%
Virtus Convertible & Income FundNCV12.99%Monthly-15.59%
Western Asset Mortgage Opportunity FundDMO11.70%Monthly-15.07%

Investing in closed-end bond funds offers potential advantages such as regular income, diversification, and professional management. However, it’s crucial to carefully evaluate the specific fund’s investment strategy, credit quality, interest rate risk, leverage, and expense ratios. Additionally, investors should be mindful of the potential impact of changes in interest rates and market conditions on the performance of these funds.

Disclosure: Author didn’t own any of the above at the time the article was written.

Stocks Going Ex Dividend in June 2023

The following is a short list of some of the many stocks going ex-dividend during the next month, which can be helpful for traders and investors interested in the stock trading technique known as “Buying Dividends” or “Dividend Capture.” This strategy involves purchasing stocks before the ex dividend date and selling them shortly after the ex-date at a similar price, while still being eligible to receive the dividend payment.

Although this technique generally proves effective in bull markets and flat or choppy markets, it is advisable to exercise caution and consider avoiding this strategy during bear markets. To qualify for the dividend, it is necessary to buy the stock before the ex-dividend date and refrain from selling it until on or after the ex-date.

However, it is important to note that the actual dividend may not be paid for several weeks, as the payment date can be delayed by up to two months after the ex-date.

For investors seeking a comprehensive list of stocks going ex-dividend in the near future, WallStreetNewsNetwork.com has compiled a downloadable list containing numerous dividend-paying companies. Here are a few examples showcasing the stock symbol, ex-dividend date, periodic dividend amount, and annual yield.

PepsiCo, Inc. (PEP)6/1/20231.2652.71%
The Kraft Heinz Company (KHC)6/5/20230.404.13%
CME Group Inc. Class A (CME)6/8/20231.102.46%
Gilead Sciences, Inc. (GILD)6/14/20230.753.82%
Nasdaq, Inc. (NDAQ)6/15/20230.221.63%
Lincoln Electric (LECO)6/29/20230.641.52%
York Water Company (YORW)6/29/20230.20271.89%

To access the entire list of dozens of ex-dividend stocks, subscribers will receive an email in the next few days. If you are not already a subscriber, you can sign up using the provided signup box below. Don’t miss out on this valuable information, and the best part is that it’s free!

Dividend Definitions

To better understand the dividend-related terms, let’s define them:

Declaration date: This refers to the day when a company announces its intention to distribute a dividend in the future.
Ex-dividend date: On this day, if you purchase the stock, you would not be eligible to receive the upcoming dividend. It is also the first day on which a shareholder can sell their shares and still receive the dividend.
Record date: This marks the day when you must be recorded on the company’s books as a shareholder to qualify for the dividend. Typically, the ex-dividend date is set two business days prior to the record date.
Payment date: This is the day on which the dividend payment is actually made to the eligible shareholders. It’s important to note that the payment date can be as long as two months after the ex-date.

Before implementing the “Buying Dividends” technique, it is crucial to reconfirm the ex-dividend date with the respective company to ensure accuracy and avoid any unexpected changes.

In conclusion, being aware of the stocks going ex-dividend can be advantageous for traders and investors employing the “Buying Dividends” strategy. WallStreetNewsNetwork.com provides a convenient resource to access a comprehensive list of such stocks, allowing individuals to plan their investment decisions effectively. Remember to stay informed and consider market conditions before employing any investment strategy.

Disclosure: Author did not own any of the above at the time the article was written; affiliate links are on this page.

How to Invest in Pickleball

by Fred Fuld III

What do Tom Brady, Patrick Mahomes, Naomi Osaka, LeBron James, Kevin Durant, Draymond Green, and Kevin Love all have in common, other than the fact that they are all sports figures?

They are all buying Major League Pickleball expansion teams.

According to Markets Report World, the pickleball industry “is expected to expand at a CAGR of 10.19% during the forecast period, reaching USD 2368.34 million by 2028.”

The sport of pickleball was invented in the mid-1960s by Joel Pritchard, a congressman from Washington state, along with his friends Bill Bell and Barney McCallum. The game was initially created as a form of entertainment for Pritchard’s family during the summer. The exact details of how the game got its name are not entirely clear, but it is believed to have been named after the Pritchard family’s dog, Pickles, who would often chase after the ball.

The first pickleball court was set up in the backyard of Joel Pritchard’s home on Bainbridge Island, Washington. The game quickly gained popularity within their community and started to spread to other regions. As more people discovered and enjoyed the sport, pickleball began to evolve and develop its own set of rules and equipment.

Pickleball combines elements of various paddle sports, including tennis, badminton, and table tennis. It is typically played on a court about one-third the size of a tennis court, with a net placed lower than a tennis net. Players use solid paddles made of wood or composite materials to hit a plastic ball with holes, similar to a wiffle ball.

In the 1970s, pickleball started to gain wider recognition and organized play. The USA Pickleball Association (USAPA) was formed in 1984 to promote and govern the sport. The USAPA established standardized rules and regulations, developed a ratings system, and organized tournaments and events.

Since then, pickleball has experienced tremendous growth, especially in the United States, but also internationally. It has attracted players of all ages and skill levels due to its accessibility, social nature, and the relatively short learning curve. Many parks, recreation centers, and athletic clubs have incorporated pickleball courts, and the sport is now played competitively at local, regional, national, and international levels.

Pickleball has become a global phenomenon, with enthusiasts and organizations working to promote and expand the sport’s reach. It continues to evolve, with ongoing innovations in equipment, strategies, and playing styles.

So with such growth potential, investors are looking for ways to participate in this industry. One way is to buy a pickleball franchise. According to the American Pickleball Association, “Franchisees can expect to make a total investment of at least $35,000.”

However, an easier way would be to invest in stocks that are involved in the pickleball field.

Unfortunately, there are no pickleball pure plays. But there are several companies that are involved in pickleball in one form or another.

Escalade Sports (ESCA) is a sporting goods company based in Evansville, Indiana, USA. They specialize in the production and distribution of various sports equipment and recreational products.

Escalade Sports has a connection to pickleball through their subsidiary company, Onix Sports. Onix Sports is a leading brand in the pickleball industry, known for manufacturing high-quality pickleball paddles, balls, and other accessories. They are dedicated to promoting the growth of pickleball and providing players with top-notch equipment.

Onix Sports is a company that specializes in the production of pickleball equipment. It was founded in 2005 by Steve Wong, a pickleball enthusiast and entrepreneur based in Evansville, Indiana, USA. Wong recognized the growing popularity of pickleball and saw an opportunity to create high-quality equipment specifically designed for the sport.

In the early years, Onix Sports focused on developing pickleball paddles that would provide players with improved performance and control. They conducted extensive research and development to create paddles that met the needs of players at all skill levels. With their commitment to innovation and quality, Onix Sports quickly gained recognition within the pickleball community.

As the sport of pickleball continued to grow in popularity, Onix Sports expanded its product line to include pickleballs, nets, bags, and other accessories. They aimed to provide players with a comprehensive range of equipment to enhance their playing experience. Onix Sports became known for their attention to detail, advanced technology, and dedication to meeting the evolving needs of pickleball players.

Over the years, Onix Sports established itself as a leading brand in the pickleball industry, gaining a strong presence at tournaments, events, and leagues. Their equipment has been used by both recreational players and professionals, earning a reputation for durability and performance.

In 2020, Escalade Sports, a sporting goods company based in Evansville, Indiana, acquired Onix Sports. This partnership provided Onix Sports with additional resources and opportunities for growth while allowing Escalade Sports to expand its presence in the growing pickleball market.

Escalade has a price to earnings ratio of 16, a decent price to earnings growth ratio of 1.06, and a very favorable price to sales of 0.53. The company has a low market cap of $157 billion but pays a dividend of 5%.

Life Time Group Holdings, Inc. (LTH) is a comprehensive health and wellness company based in Chanhassen, Minnesota, USA. Life Time operates luxury athletic resorts, known as Life Time destinations, which offer a wide range of amenities and services, including fitness facilities, spa services, sports courts, swimming pools, and more.

Life Time has recognized the growing popularity of pickleball and its appeal to a wide range of individuals looking for engaging and social fitness activities. As a result, many Life Time destinations have started offering pickleball facilities to their members. These facilities typically include dedicated pickleball courts and provide opportunities for members to participate in pickleball leagues, tournaments, and social play.

The connection between Life Time Group Holdings, Inc. and pickleball lies in the company’s efforts to promote and support pickleball as a recreational activity within their athletic resorts. By offering dedicated pickleball facilities, Life Time aims to provide their members with diverse fitness options and cater to the increasing demand for pickleball.

Life Time has a $3.87 billion market cap, a trailing P/E ratio of 63.6, and a forward P/E of 34. Earnings per share growth for next year is estimated to increase by 49.5%. The stock does not pay a dividend.

Another alternative is Dick’s Sporting Goods (DKS). It is a well-known sporting goods retailer based in Coraopolis, Pennsylvania, USA. The company was founded in 1948 by Richard “Dick” Stack and initially operated as a small bait-and-tackle shop. Over the years, Dick’s Sporting Goods expanded its product offerings and grew into a major retail chain with stores across the United States.

As for its connection to pickleball, Dick’s Sporting Goods has recognized the increasing popularity of the sport and has been actively stocking pickleball equipment in its stores. They offer a variety of pickleball paddles, balls, nets, apparel, and accessories from different brands. By providing a range of pickleball gear, Dick’s Sporting Goods aims to cater to the needs of pickleball players and enthusiasts.

In addition to selling pickleball equipment, Dick’s Sporting Goods has also supported the sport through sponsorships and partnerships. They have collaborated with various organizations and events to promote pickleball and increase awareness of the sport. Such initiatives include sponsoring tournaments, clinics, and leagues.

The company has an $11.5 billion market cap, trades at 12.8 times trailing earnings and 9.7 times forward earnings. The price sales ratio is a favorable 0.93. The stock has a dividend yield of 2.95%.

Other companies in this arena include adidas AG (ADDYY), which makes pickleball paddles, shirts, shorts, and shoes, ASICS Corporation (ASCCY) which makes paddleball shoes, and Big 5 Sporting Goods Corporation (BGFV) which sells pickleball paddles and balls.

Playing pickleball is a great way to work on your backhand and your portfolio. Both require patience, strategy, and a good follow-through.

Disclosure: Author didn’t own any of the above at the time the article was written.

Chocolate: Healthy for You, Healthy for Your Portfolio

by Fred Fuld III

Chocolate, especially dark chocolate that contains a high percentage of cocoa solids, has several potential health benefits. Here are some of the health benefits of  chocolate:

Rich in antioxidants: Chocolate, particularly dark chocolate, is a good source of antioxidants that help protect the body against free radicals that can cause cell damage.

May lower blood pressure: Studies have found that consuming dark chocolate on a regular basis may help lower blood pressure, which is a risk factor for heart disease.

May reduce the risk of heart disease: The flavonoids in dark chocolate may improve heart health by reducing inflammation and improving blood flow, which may lower the risk of heart disease.

May improve brain function: The flavonoids in dark chocolate may also improve brain function and protect against cognitive decline, particularly in elderly individuals.

May reduce the risk of stroke: Studies suggest that consuming chocolate, particularly dark chocolate, may help lower the risk of stroke.

May improve mood: Chocolate contains several compounds that may improve mood, including phenylethylamine, which stimulates the release of endorphins and dopamine, two chemicals that produce feelings of happiness and pleasure.

So if chocolate is so healthy, then maybe there are some investment opportunities in this tasty industry.

The Hershey Co. (HSY) is one of the largest chocolate manufacturers in the world. The company, which is headquartered in Hershey, Pennsylvania, controls a significant share of the domestic chocolate market.

The company produces a wide range of chocolate and confectionery products, including Hershey’s chocolate bars, Hershey’s Kisses, Reese’s Peanut Butter Cups, Kit Kat, Twizzlers, and Jolly Rancher candies. Hershey also manufactures baking chocolate, cocoa powder, and chocolate syrup.

In addition to its operations in the United States, the Hershey Company has a presence in over 70 countries worldwide, including Canada, Mexico, Brazil, China, and India. The company employs over 18,000 people.

The company has a market cap of $54.8 billion and pays a dividend yield of 1.51%. The stock has a price-to-sales ratio of 5.28, and trades at 33 times trailing earnings and 29 times forward earnings. Annual Earnings per share growth for the last five years was 17.8%, and a 44.6% growth this year.

Rocky Mountain Chocolate Factory Inc. (RMCF) is a confectionery and franchising company based in Durango, Colorado, United States. It was founded in 1981 by Frank Crail and has since grown into a well-known brand in the chocolate industry.

The company specializes in producing and selling a wide variety of chocolate and confectionery products. Some of their popular offerings include caramel apples, fudge, truffles, chocolate-covered strawberries, toffee, and various types of chocolate bars. They also offer seasonal and holiday-themed chocolates.

Rocky Mountain Chocolate Factory operates a combination of company-owned stores and franchised locations. Their stores are known for their attractive displays of chocolate and the opportunity to watch the candy-making process through a glass window, which adds to the customer experience.

In addition to its domestic presence, Rocky Mountain Chocolate Factory has expanded internationally and operates stores in several countries worldwide. They also offer online ordering, allowing customers to purchase their chocolates from anywhere.

Rocky Mountain Chocolate Factory Inc. has an extremely small market cap of $34 million. Its stock has a reasonable price-to-sales ratio of 0.99 and a price-to-earnings ratio of 13. Quarterly revenue growth year over year was 11.8% and quarterly earnings growth was 85.9%. The company is debt free.

Tootsie Roll Industries (TR), although not a “chocolate” company as such, is a confectionery manufacturer based in Chicago, Illinois, United States. The company was founded in 1896 by Leo Hirshfield and is named after his daughter’s nickname, “Tootsie.”

Tootsie Roll Industries is primarily known for its iconic Tootsie Roll, a chocolate-flavored taffy-like candy that has become a classic American treat. However, the company produces and markets a diverse range of confectionery products, including Tootsie Pops, Charms Blow Pops, Dots, Junior Mints, Sugar Daddy, Charleston Chew, and Andes mints, among others.

The company operates manufacturing facilities in the United States and Mexico. Its products are distributed both domestically and internationally, with a presence in over 75 countries.

Tootsie Roll Industries has maintained a focus on quality and craftsmanship throughout its long history. The Tootsie Roll, in particular, has remained relatively unchanged in its recipe and packaging, and it is often marketed as a nostalgic candy beloved by generations.

The stock has a market cap of $2.64 billion and pays a yield of 0.97%. It has a P/E ratio of 34, and earnings per share growth this year were up 17.3%.

A few other chocolate stocks that may be worth looking into are Mondelez International (MDLZ), Nestle (NSRGY), and Lindt & Sprungli AG (LDSVF).

Let me leave you with these thoughts:

“Investing is like a box of chocolates; you never know what sweet returns you’ll get.”

“Successful investing is like creating a perfectly balanced chocolate recipe – it’s all about finding the right mix.”

“Remember, investing is a marathon, not a sprint, just like savoring a piece of delicious chocolate.”

“Investing is like a chocolate factory; it takes careful planning and good management to churn out sweet profits.”

Disclosure: Author didn’t own any of the above at the time the article was written.

Top NYSE Short Squeeze Stocks

by Fred Fuld III

Many stocks have dropped during the last few weeks.

This may create a buying opportunity for New York Stock Exchange stocks that are heavily shorted.

Do short squeeze stocks actually go up?

On August 22, 2022, I posted an article about meme related short squeeze stocks, and pointed out Bed Bath and Beyond (BBBY) after it had its big run-up. In exactly one week after the article was posted, the stock jumped by more than 43%.

Another stock that was mentioned was Intercept Pharmaceuticals, Inc. (ICPT), which increased by almost 5% in just two days.

The stock with the biggest short ratio (days to cover) last August, at 14.3 back then, was Heron Therapeutics, Inc. (HRTX). It rose by 9.5% in three days.

When you short a stock, it means that your goal is to make money from a drop in the price of a stock. Technically, what happens is that you borrow shares of a stock, sell those shares, then buy back those shares at a hopefully lower price so that those shares can be returned. This all happens electronically, so you don’t actually see all the borrowing and returning of shares; it just shows up on your screen as a negative number of shares.

Short sellers can be profitable, but sometimes when the stock moves against them, and begins to rise, the short sellers jump in right away to buy shares to cover their positions, creating what is called a short squeeze. When a short squeeze takes place, it can cause the share prices to increase fast and furiously. Any good news can trigger the short squeeze.

Some traders utilize this situation by looking for stocks to buy that may have a potential short squeeze. Here is what a short squeeze trader should take into consideration:

Short Percentage of Float ~ The float is the number of freely tradable shares and the short percentage is the number of shares held short divided by the float. Amounts over 10% to 20% are considered high and potential short squeeze plays.

Short Ratio / Days to Cover / Short Interest Ratio -This is probably the most important metric when looking for short squeeze trades, no matter what you call it. This is the number of days it would take the short sellers to cover their position based on the average daily volume of shares traded. This is a significant ratio as it shows how “stuck” the short sellers are when they want to buy in their shares without driving up the price too much. Unfortunately for the shortsellers, the longer the number of days to cover, the bigger and longer the squeeze.

Short Percentage Increase ~ This is the percentage increase in in the number of short sellers from the previous month.

The following are some heavily shorted stocks that may be worth considering.

CompanySymbolShort % of floatShort % changeShort Interest Ratio
Carvana CoCVNA58.05%1%2.8
Silvergate Capital CorpSI45.08%-12%0.8
Big Lots, Inc.BIG39.78%11%7.3
Fisker IncFSR37.34%7%8.7
Wayfair IncW30.02%-5%4.3

The third stock on the list, Big Lots (BIG) has almost 40% of its float shorted, an increase of 11% over last month.

The short interest ratio is 7, which means that it would take the short sellers 7 days to cover their position, based on recent average volume.

Just keep in mind that just because a stock has good ratios and is heavily shorted, doesn’t mean that the stock will go up, especially in a bear market. Also, stocks that are significantly shorted may be shorted for a reason.

Disclosure: Author didn’t own any of the above at the time the article was written.