Goldman says these stocks could see ‘short squeeze’ rally this earnings season

A bounce could be in store for some stocks that are well liked but shorted, according to Goldman Sachs. Analyst John Marshall noted stocks that have been the victim of shorts have seen bounces in recent days. In this vein, Goldman has found in studies that equities that are severely squeezed tend to be more likely to see relief rallies. “Over the past week, we have seen a significant rally in stocks that were heavily shorted,” he told clients in a Wednesday note. “As we look ahead to a potential relief rally in stocks this quarter, we find that investors are increasingly worried about upside asymmetry in stocks with high short interest.” Given this, Marshall screened for names that have buy ratings from Goldman, while also having above-average short interest and liquid options. The firm then narrowed the list down to those with upcoming earnings reports. Marshall said investors should buy call options on these names heading into earnings. A call option gives an investor the right to buy a stock for a certain price during a specific time period. Buyers purchase call options when they expect a stock’s price to move higher. Here are eight that passed the screen: Chewy was one name on the list, with a 10.7% short-interest-to-float ratio. The pet retailer has climbed more than 22% in 2024, placing the stock on track to snap a three-year losing streak. Goldman is in the Wall Street majority on Chewy with a buy rating, according to LSEG. The average price target suggests shares can rise more than 7% over the next year. TD Cowen analyst William Kerr joined the bull camp earlier this month with an initiation at buy. He set a Wall Street-high price target at $38, which implies 31.7% upside over Tuesday’s close. “Chewy is the leading pure play eCommerce offering in the $144 [billion] US Pet Industry,” he wrote to clients when announcing the call. “The company has a strong retail biz coupled with a growing pet health offering, including the largest online pet pharmacy.” Further down the list, Royal Caribbean carried a 4.9% short interest share compared with the float. The cruise stock has surged more than 56% in 2024, building on last year’s 162% rally. After that monster run, the average analyst surveyed by LSEG sees shares sliding just over 6.5% in the next year. Still, they have a buy rating on the Miami-based firm. Royal Caribbean was the only major cruise line stock in this screen. Morgan Stanley analyst Jamie Rollo said in August that Royal Caribbean has “structural advantages” over Carnival and Norwegian , making it his preferred play in the space. RCL NCLH,CCL YTD mountain Royal Caribbean vs. Norwegian and Carnival, year to date CrowdStrike also made the cut with a 4.4% short-interest-to-float rate. The stock has climbed more than 18% this year despite making global headlines for causing an international IT blackout earlier this year. Regardless, the majority of analysts surveyed by LSEG have a buy rating. The average price target reflects the potential for shares to add more than 7% in the year ahead.