When someone bets against a stock and shorts it, they are selling an investment they don't currently own. And that creates the obligation to eventually buy it back at a later date. The risk here is that the stock's price takes off in value -- resulting in losses for the speculative investor. In an extreme situation, there can be a short squeeze where many short-sellers are rushing to cover their positions, thus driving a stock's price up even higher.
Two stocks that could result in possible short squeezes this year are Teladoc Health (TDOC 0.81%) and Beyond Meat (BYND 6.58%). These are solid businesses that possess some incredible growth potential that I wouldn't dare bet against.
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1. Teladoc Health
Telehealth giant Teladoc Health had a rough year in 2021, falling more than 54% while the S&P 500 rose by 27%. It wasn't for a lack of results, though. The healthcare company continued to deliver quarter-over-quarter growth, even as the economy was returning to normal (although now that remains in doubt in light of the omicron variant).
Sales for the third quarter (ending Sept. 30, 2021) totaled $522 million and were up 4% from the previous period. On a year-over-year basis, they were up over 80% thanks to the acquisition of chronic care company Livongo. The acquired entity wasn't part of the business until Oct. 30, 2020, and thus, its results weren't included in the numbers for the prior-year period. In the second quarter, Teladoc's top line totaled $503 million and was 11% higher than the first-quarter revenue of $454 million.
In each one of its quarterly reports for 2021, Teladoc raised its annual guidance for both revenue and total visits. The one negative can be that the business is still in the red, but even its earnings before interest, taxes, depreciation, and amortization (EBITDA) loss is trending in the right direction. In Q3, the company projected a loss of no more than $80 million for the full year, and just a period earlier it forecast a loss of $100 million to $120 million.
Short-sellers are betting against the stock despite its improving results, which could prove to be a big mistake this year. Short interest (as a percentage of float) hasn't been this high in over a year:
TDOC Percent of Float Short data by YCharts
If Teladoc can continue delivering strong growth numbers, it could be hard to keep the stock down, and a short squeeze may be inevitable in 2022.
2. Beyond Meat
A stock with even more short interest is fake meat substitute manufacturer Beyond Meat. At 39%, its short interest as a percentage of its float is higher than the usual suspects, AMC Entertainment and GameStop:
BYND Percent of Float Short data by YCharts
Beyond Meat has had better days, as inflation and lockdowns aren't doing the company's plant-based products any favors. Fake-meat products cost more than real meat products, so the increase in short interest of late can be indicative of investors taking a bet that the company will underperform in the near term due to inflation, as consumers become more price-conscious. Inflation hasn't been this high in decades, and for anything that is sold at a premium, it could be a rough road ahead.
However, the big question is how long inflation may last, and that's anyone's guess at this point. Once there are signs that it could be ending, that could turn the tide in Beyond Meat's favor. Investors are quick to jump on positive (and negative) developments. So, if there's any sign this year that inflation could be coming to an end sooner rather than later, look for Beyond's stock to get a big boost.
Unfortunately, right now, it's doom and gloom for the stock, especially since the company's net sales of $106.4 million for the period ending Oct. 2, 2021. Net sales were up a modest 13% year over year and missed analyst projections of $109.2 million. Investors were also likely spooked by the company's fourth-quarter guidance that projected net revenue to be just $85 million to $110 million. CEO Ethan Brown admitted that it was a "tepid guidance" and that he "didn't want to go through this again" (likely alluding to the questions about the disappointing numbers for the past quarter).
It's typically not a bad thing to be conservative on guidance because it can help put less pressure on the company to meet short-term targets (potentially at the cost of longer-term ones). The pandemic and overall economy are weighing down Beyond Meat right now. Yet, once those issues subside, that could pave the way to some much stronger results for the company.
Plus, Beyond could be one of the best recovery stocks to buy right now. It is supplying the patty for McDonald's McPlant burger and also has a joint venture with PepsiCo that could lead to more product launches in the near future. In addition, it recently launched meatless chicken tenders in grocery stores. And this week, KFC restaurants (owned by Yum! Brands) announced that it will be adding Beyond's chicken to its menu.
With so many deals and catalysts that may generate growth for Beyond in 2022, it looks like a top growth stock to buy right now. It has the potential to outperform and deliver some earnings surprises, which could lead to a short squeeze this year.
