In 2023, the stock market is likely to be turbulent. With the profitability of many companies declining, the stock market could decline further, continuing last year’s rout. That said, the picture for the second half of 2023 could be brighter than expected, as experts expect interest rate hikes to subside and valuations to hold steady. Additionally, investors have recently become more interested in higher-risk names, such as stocks with a large number of stocks sold short, which could become short-term stocks, and crypto. As a result, some think we could be heading for a 2021 repeat.
I wouldn’t go that far yet. Investors still face significant challenges that are not expected to subside just yet.
Of course, greater risk tolerance by the street would be welcomed by all investors. For those looking for a more speculative way to play this rally, short-term stocks are often the first place to look. However, most companies that are heavily overdrawn find themselves in this situation because they are in serious trouble. Many investors do not believe in the survivability of these companies, which makes them very risky bets.
That said, many investors are sometimes wrong. Here are three companies that could continue to rally in January despite having high percentages of their shares sold short.
|SDIG||Stronghold Digital Mining||65 cents|
|SKYH||Sky Harbor Group||$5.52|
Stronghold Digital Mining (SDIG)
As indicated by his name, Stronghold Digital Mining (NASDAQ:SDIG) is an actor in the Bitcoin (BTC-USD) mining industry. By solving complex mathematical problems, Stronghold earns rewards in the form of BTC. Like other major players in this space, Stronghold’s fundamentals really depend on Bitcoin prices.
That’s because the company’s 25,900 mining computers have their own fixed and variable costs, which don’t really change. The only way for the company to increase revenue on its own is to increase production by adding more computing power. Its sales also increase when the price of Bitcoin increases. So, given Bitcoin’s performance over the past year, it’s clear the company’s margins are under pressure.
That said, a recovery in the price of Bitcoin coupled with the surge in many very short stocks has driven SDIG stock up over 30% in 2023.
Additionally, Stronghold Digital Mining is trying to improve its balance sheet by launching a debt swap. As part of the deal, the company would issue $23 million in new shares. This new stock issue would theoretically eliminate the company’s debt and reduce its interest costs by more than $18 million.
I think this company is an intriguing speculative opportunity for those currently looking for leveraged exposure to crypto.
Sky Harbor Group (SKYH)
Next on this list of short-term stocks to watch this month is Sky Harbor Group (NYSEARC:SKYH). Following its merger with the special purpose acquisition company (SPAC) Yellowstone Acquisition Company, SKYH stock gained ground. However, after falling for most of 2022, stocks have started to rally again. In 2023, the share price of this aviation hangar rental company has almost doubled.
Much of the stock’s gains were driven by its relatively high short interest. With around 35% of the company’s float sold short, investors are increasingly betting that it will suffer a short squeeze.
And relatively few of the company’s shares are publicly traded. So, for investors looking for the right setup for a squeeze, SKYH is a strong candidate.
Additionally, the City of Addison, TX and Sky Harbor have signed a contract that will roughly double Sky Harbor’s footprint at Dallas Addison Airport. So, for those looking for a good, high-risk, short-term stock to buy, SKYH looks compelling at this point.
Rounding out this list of near-term stocks expected to rally, a beleaguered electric vehicle maker Nicholas (NASDAQ:NKLA). Indeed, NKLA faces many challenges which are always factored into the actions. Thus, it is not surprising that more than 30% of the company’s shares are sold short.
Short sellers have continued to attack Nikola over the years, for various reasons. In many cases, short sellers turned out to be correct, as Nikola founder Trevor Milton was found guilty of fraud.
However, now that the company’s management team has been shaken up, perhaps this stock, which could suffer a short squeeze, is worth holding right now. The company’s focus on direct hydrogen supply to power cell electric vehicles (FCEVs) through its new 10,000 psi hydrogen mobile refueler is sparking interest in the name.
Additionally, Nikola announced that the company is moving its battery production from Cypress, California to its manufacturing facility in Coolidge, Arizona. The company expects the relocation, which will be completed early in the third quarter, to consolidate Nikola’s truck assembly, fuel cell power module assembly and module and battery pack production under one roof. . This will allow the company to focus on automating its battery production. This, in turn, should make its battery production more efficient and enable it to produce better batteries.
As of the date of publication, Chris MacDonald had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.