5 Short Squeeze Stocks To Watch: Analyst Names Etsy, LGI Homes And Other Consumer Discretionary Plays

Consumer discretionary stocks are often hit particularly hard when the U.S. economy slips into a recession. Short sellers were hoping rising interest rates, persistently elevated inflation and two consecutive quarters of negative GDP growth would keep the S&P 500 trending lower in the second half of 2022, but so far that hasn't been the case.

Stocks appear to have at least a temporary bottom, and the Consumer Discretionary Select Sector SPDR Fund XLY has jumped 17.1% in the past month.

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The higher consumer discretionary stocks rise, the more pressure it puts on short sellers to cover their position, creating tremendous opportunity for a short squeeze.

Consumer Discretionary Short Squeeze Candidates: S3 Partners analyst Ihor Dusaniwsky has just released a list of potential short squeeze stocks based on S3's analysis of a number of factors including a stock's total short interest, short percent of float, stock loan liquidity and trading liquidity. S3 also incorporates recent short seller losses into its formula.

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Here are the five U.S.-listed consumer discretionary stocks most at risk of a short squeeze, according to S3 Partners. Total short interest is included for each stock:

• LGI Homes Inc LGIH, $299.8 million.
• Etsy Inc ETSY, $1.41 billion.
• LCI Industries LCII, $232.9 million.
• Bath & Body Works Inc BBWI, $599.3 million.
• H & R Block Inc HRB, $364.6 million.

Since June 17, Etsy short sellers have been hit particularly hard, enduring mark-to-market losses of $348.6 million. S3 estimates about 12% of Etsy's float is currently held in short positions, creating significant potential for extreme volatility if a short squeeze occurs.

Benzinga’s Take: Short squeezes are extremely unpredictable, and a high Squeeze Score is not a definitive indication that a squeeze is coming. Yet the combination of high short interest and rising short seller losses makes these five stocks worthy of being at the top of any consumer discretionary short squeeze watch list.

Photo: Masson via Shutterstock