2 Recent Short Squeeze Stocks That Are Now Attractively Valued

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Short squeezes have been happening in many corners of the market over the past few weeks, driven largely by millennial investors who are specifically motivated to crush Wall Street shorts. The recent short-squeeze wave started as a group discussion on an online forum, Reddit, where retail investors started piling up GameStop (GME) stock.

The stock had nearly 138% of its float sold short and prices surged nearly 300%, causing dramatic losses to hedge funds. The trade worked so well that the trend soon spilled over to other highly shorted stocks, causing massive spikes in both share prices and volatility.

While a large portion of some companies’ shares were sold short by pessimistic hedge funds, some of them genuinely belong in investment portfolios on their own merits because the short-lived, short-squeeze saga has now weakened considerably. We believe Bed Bath & Beyond Inc. (BBBY) and AMC Networks Inc. (AMCX) are two such stocks. We think they could prove to be long-term winners on the back of improving fundamentals because the prices of both stocks have now returned to earth, providing a better entry point.

Bed Bath & Beyond Inc. (BBBY)

BBBY is an omnichannel retailer that operates a chain of retail stores, selling a wide assortment of merchandise in the Home, Baby, Beauty, and Wellness markets. The company sells domestic amenities and other products to retail shoppers and institutional customers in various industries. In addition to its e-commerce website, the company had 1,391 stores in all 50 states as of last November.

BBBY became a favorite of Reddit traders in January as short-sellers held more than two-thirds of the shares on Jan. 25. From an $18 level at the beginning of the year, the stock surged 197.8% to hit its 52-week high of $53.90 on Jan. 27. This represented a more than 75% jump in just three trading days.

However, the stock has since cooled down to most recently close at $26.29, representing a more modest 48% year-to-date gain. In terms of forward p/s, BBBY has recently been trading at 0.36x, 74.1% lower than the industry average of 1.39x. In terms of its trailing-12-month p/b ratio, BBBY is trading significantly lower than the industry average (2.38x vs 3.51x).

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