As the market seesaws, Wolfe Research is eyeing stocks where it thinks downward pressure is building. Stocks have been volatile for the majority of the week as investors weighed a number of conflicting signals about where the market and interest rate policy could be heading. Two key inflation reports were hotter than expected, suggesting the Federal Reserve would be unlikely to trim rates anytime soon. However, several earnings reports suggested the economy was continuing to chug along in the face of higher prices. The week brought us the Dow Jones Industrial Average’s biggest daily decline in nearly a year, but also managed to log fresh record highs for the S & P 500. All three major indexes broke a five-week winning streak on Friday. But no matter which way the market heads from here, Wolfe thinks there are some stocks that could make for profitable short selling targets. Selling a stock short involves borrowing shares at a set price with the expectation that it will fall, allowing an investor to buy it back for a profit. But it’s a risky bet as the potential losses from this strategy are unlimited if the stock rises. The firm maintains a basket of “short hits” that is down roughly 3.1% over the month and 9% from the start of the year . These losses follow a decline of 23% in 2023. The “hits” list captures stocks that appear the most among Wolfe’s 16 screens for short ideas, which study criteria ranging from earnings quality and insider selling to gross margin volatility. Identifying these stocks shows it has multiple underlying factors that suggest its share price will decline. Tesla has the second-most mentions among Wolfe’s short interest screens with six, trailing Walgreens , which has seven. The electric vehicle stock has plummeted from the start of 2024, with a decline of more than 19%. Short interest for the EV maker hovers around 3% of the company’s float, or the amount of stock on the open market available to trade. TSLA YTD mountain Tesla stock. Tesla’s fourth-quarter earnings report was disappointing and the company warned of slower vehicle volume growth in 2024 as it works to develop a “next-generation vehicle.” But little has changed for analysts covering Tesla stock despite the weaker forecast. Thirty-nine percent of analysts surveyed by FactSet rate the stock as a buy as of Feb. 24, compared to 40% a month earlier. Their price targets imply roughly 7% upside moving forward. To be sure, Tesla has been contending with slower-than-anticipated EV demand, which has dragged on sales and consumer adoption. The company embarked on a string of price cuts in 2023, which squeezed its margins and stoked investor concern over revenue. This trend is also a headwind for peer company Rivian , which also made Wolfe’s list. Rivian will report its fourth-quarter results on Wednesday. The stock’s short interest hovers around 16% of float, and it appears on seven of Wolfe’s short screens. Shares have plummeted more than 30% from the start of the year. DraftKings also made the cut. The sports betting stock has been off to a strong 2024 with a 26% gain. Short interest remains high, however, sitting at nearly 6% of float. DraftKings now appears on four of Wolfe’s short screens, up from three in the month prior. DKNG YTD mountain DraftKings stock. While shares initially sold off after the company missed fourth-quarter estimates Thursday evening, the stock hit a 52-week high on Friday as analysts raised price targets on an upbeat revenue outlook. DraftKings anticipates 2024 revenue in the range of $4.65 billion to $4.90 billion, compared with an estimate of $4.69 billion from LSEG. Seventy-seven percent of analysts polled by FactSet rate DraftKings stock a buy, but the average price target is very close to where the stock is currently trading. DraftKings faces stiffer competition moving forward, with the recent listing of FanDuel parent Flutter Entertainment . This rivalry may mean DraftKings has to spend heavily on marketing and customer incentives. Stocks that also made the list include toymaker Hasbro and biotech firm Moderna .
