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3 Heavily Shorted Stocks That Are Down More Than 75% Since 2021. Can they turn things around?

Investing in struggling stocks that are also heavily shorted can be an incredibly risky move. But if these types of stocks manage to turn things around and prove their doubters wrong, the upside could also be significant. It’s not a suitable investment strategy for most investors, but if you have a high risk tolerance, there are three possible contrarian choices to consider.

Reliance on medical properties (NYSE: MPW), Beyond meat (NASDAQ: BYND)And Plug-in power supply (NASDAQ: PLUG) Here are three troubled stocks that many short sellers expect will continue to struggle. Below I’ll look at how heavily these stocks have been shorted, what needs to happen to turn the situation around, and whether they’re worth investing in today.

Medical Properties Trust: 50% short interest

A real estate investment trust (REIT) can sometimes be an attractive investment because of its recurring dividend income and stability. But a REIT is only as stable as its tenants. And Medical Properties Trust is a REIT that has had problems in the past with key tenants, including Steward Health, which filed for bankruptcy protection earlier this year.

Medical Properties’ earnings turbulence has resulted in a disastrous performance for the stock, which is down as much as 79% since 2021. And while the REIT has distanced itself from Steward Health and is relying on new tenants, short interest remains incredibly high at around 50% of the stock price.

If Medical Properties wants to turn things around, it must prove that it can generate positive profit figures again and that its new tenants are much safer. The healthcare REIT has posted a net loss for three quarters in a row. It will take some time for Medical Properties to prove that this is a safer option for investors, and with the company having cut its dividend twice since last year, it won’t be easy for many investors to trust this stock.

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With interest rates potentially falling further next year, I think there could be a contrarian play here as REITs could become more attractive investments at lower interest rates. And with so much bearishness priced into the valuation, Medical Properties may not need to perform all that well to impress the market these days. This is a very risky stock, but there are reasons to consider taking a chance on it. However, the safe option would be to wait at least a few quarters to see if Medical Properties can find some stability in its earnings.

Beyond Meat: 40% short interest

Another heavily shorted stock is Beyond Meat. The fake meat company is not doing well for several reasons. Not only has demand been unimpressive, but gross margins are often negative, making it difficult to see a path to profitability for the company in the near term. With short interest as high as 40%, investors clearly aren’t buying the hype surrounding Beyond Meat’s plant-based foods. Since 2021, Beyond Meat has lost a whopping 95% of its value; it’s almost impossible that the stock has underperformed since then.

Over the trailing twelve months, Beyond Meat’s net loss of $314.4 million is almost as high as its revenue of $317.8 million. Unfortunately, there’s no easy way to see a turnaround for Beyond Meat. It needs a plant-based product that is in high demand and for which it can charge a price high enough to significantly strengthen its margins. And until that happens, it’s hard to even see a path for a turnaround.

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This food stock may be too risky an investment, even for contrarian investors.

Plug Power: 29% short interest

Plug Power shares have also fallen more than 90% since 2021, as the hype around hydrogen energy has crumbled dramatically in recent years. The company has reported huge losses, making Beyond Meat’s numbers look almost decent. Over the past four quarters, Plug has posted a net loss of nearly $1.5 billion on revenue of $684.5 million. And like Beyond Meat, it regularly reports negative gross margin, which is a huge red flag for investors. The short interest in Plug Power amounts to just under 30%.

If you believe in hydrogen energy, you might be tempted to take a chance on Plug Power. But the risk is that the company may no longer exist even if hydrogen energy takes off and becomes the energy solution of choice in the future. Although Plug Power boasts a leading position in the hydrogen industry, that has not led to a strong financial position for the company, and that may be more important for investors.

Plug Power reported $285.2 million in cash (including escrow cash) at the end of June. And for a company that has wasted $422.5 million on its daily operations over the past six months, the problem is clear: the company needs to drastically slow its cash flow and cut costs. Regardless of hydrogen’s potential, it will all be for naught if Plug Power continues to accumulate these types of losses. That’s why I think this might be the riskiest stock on this list, and the stock that might have the toughest path to turning things around.

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Without clear evidence of significant improvement in financials, this is a stock you’ll probably want to stay away from.

Don’t miss this second chance at a potentially lucrative opportunity

Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.

On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

  • Amazon: If you had invested $1,000 when we doubled in 2010, you would have $21,049!*

  • Apple: If you had invested $1,000 when we doubled in 2008, you would have $43,847!*

  • Netflix: If you had invested $1,000 when we doubled in 2004, you would have $378,583!*

We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.

See 3 “Double Down” Stocks »

*Stock Advisor returns October 14, 2024

David Jagielski has no position in the stocks mentioned. The Motley Fool holds and recommends positions in Beyond Meat. The Motley Fool has a disclosure policy.

3 heavily shorted stocks that are down more than 75% since 2021. Can they turn things around? was originally published by The Motley Fool

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