The Nasdaq Composite (NASDAQINDEX:^IXIC) has been on fire for most of 2020, rebounding from the coronavirus bear market in February and March and posting returns that have crushed other stock market benchmarks.

Those who bet on Nasdaq stocks to defy the COVID-19 pandemic have been rewarded, while those who sought to profit from declines have largely been frustrated. Even with the Nasdaq Composite taking a bit of a breather from its bull run on Wednesday morning, falling about a quarter-percent just before noon EST, investors can't be upset about the benchmark's long-term performance.

Yet it's interesting to look more closely at stocks that investors think are most likely to lose ground. The Nasdaq makes short-interest figures available on the stocks that list there, and among the most frequently shorted stocks are two interesting companies with very different business models: Bed Bath & Beyond (NASDAQ:BBBY) and National Beverage (NASDAQ:FIZZ). Let's look more closely at these two stocks to see the argument for and against their businesses.

Beyond retail woes

Bed Bath & Beyond has a huge mass of short-selling interest among investors. The home goods retailer has about 126 million shares outstanding, nearly 120 million of which are available for the public to trade. Of those, a whopping 66 million shares -- well over half the company's outstanding shares -- were sold short as of the most recent report from November.

For anyone who's watched Bed Bath & Beyond in recent years, that shouldn't come as a huge surprise. The retailer has struggled during the COVID-19 pandemic, which caused store closures and forced the company to promote its e-commerce channel much more aggressively. Even before the pandemic struck, Bed Bath & Beyond was having difficulty fending off competition from online-only rivals.

More recently, the stock has climbed to its best levels in more than a year, as the company has tried to come up with plans to mount a rebound effort. Yet many are still skeptical of Bed Bath & Beyond's ability to demonstrate any long-term competitive advantage over the many companies that do business in the same niche.

The holiday season will be important for those shorting Bed Bath & Beyond. A strong performance could lead to a massive short squeeze, while poor results could force Bed Bath & Beyond to face the reality that it could share the dire fates of many retailers that are no longer with us.

Glass with sparkling water being poured into it.

Image source: Getty Images.

Too much fizz?

National Beverage is in a very different situation. By one measure, short interest in the maker of LaCroix sparkling water is relatively modest, with 7.78 million shares sold short out of nearly 47 million outstanding. However, the vast majority of National Beverage shares are held by private investors, making the number of shares actually available to public traders relatively small. As a result, roughly two-thirds of National Beverage's public float was sold short as of the most recent reporting date.

Anyone who shorted National Beverage early this year has met with big disappointment. The stock price had doubled in the past year and is up 150% from its March lows.

The sparkling water segment has been a huge blockbuster in the industry in recent years, and LaCroix's success vaulted National Beverage into the limelight. A big rise in the number of rival companies offering their own seltzers crushed the stock in late 2018 and 2019, though, and some questioned whether LaCroix had enough brand awareness to withstand heightened competition.

Now, National Beverage is seeing new interest in LaCroix, and that's driving the stock higher. Short-sellers think that another downturn is inevitable. But when you look at some of the players in the alcoholic seltzer industry and how far they've risen, you can see just how dangerous a bearish call it is to bet against National Beverage right now.

Be careful with your shorts

Short-selling has theoretically infinite risk with only finite reward, and that makes it a risky proposition for investors. Even with so many Nasdaq investors betting against National Beverage and Bed Bath & Beyond, there's no guarantee that those stocks won't defy their naysayers and keep on rising.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.