🚨 Short Squeeze Alert. These Two Stocks Could Explode.

Volume may be down this summer, but there are a couple of stocks primed for a short squeeze right now. Joining us today is MarketBeat analyst Thomas Hughes with a look at two names that look like they're setting up for a short squeeze. Thomas, thanks so much for joining us today for these two names. We're going to dive into pretty deeply today, but before we get to the actual stocks, I just want to talk about short squeezes. I know that this might be a little elementary for some long-term investors, but if you're new to investing, it's good to know just some basic education on what this means. So we talk about a short squeeze. Talk about what this setup looks like. Well, short squeeze is a market dynamic that comes around when there's a high short interest. Short interest or short selling is when traders sell shares that technically don't exist. They think the stock is overpriced or it's facing headwinds or hurdles that are going to cause a stock price decline. They can borrow shares from an existing shareholder, do that through their trading platform, borrow those shares, and then sell them onto the market at this high price with an expectation to buy them back at a lower price. So a short squeeze is when a stock has a high short interest and there is a potential trigger for massive share buying. It could be simply or as simple as better than expected earnings or some kind of a corporate turnaround that just creates a reason for investment capital to flow into the market that triggers the shorts to want to close their positions, but the anticipation of share price is rising. But if the catalyst is strong enough, it triggers a massive influx of investment capital and a massive influx of short covering at the same time, totally eats up all the available shares and causes share prices to spike. Share price spikes could be 10%, 15%, 40%, 100%, depending on the stock in the market. It just depends on how short it is, the days to cover, which is how many days at average volume it would take to eat up all those short shares and then the catalyst for driving the retail investment. Short squeezes are definitely something we hear about more often in some of the small cap stocks that don't have a lot of volume, don't have a lot of shares, right? We hear about them more in that area. I think it's easier for it to happen in that environment, right? Oh, for sure. For sure. There's a phenomenon called a low float stock in which a company is 100% of the company, but only 10% of the shares are available. So in that situation, there's only a small amount of shares available to begin with. And then if there's a massive surge of capital into that market, those shares can rise exponentially. Yeah. Let's talk a little bit about what this means for investors, whether you don't own the stock and you're thinking about getting in, should you get in anywhere near that short squeeze? And then if you do own the stock, what could this mean for the stock that you already own in this name? Well, right. So these are certainly high risk speculations. There are reasons for the short sellers to be in these markets. So there's certainly risk of further downside movement, but the impact for investors is that given an expectation for bullish catalyst, the short squeeze could cause those share prices to rise. So you're buying in to these stocks at low, low prices. You could see double digit gains within days or weeks, simply based on the short squeeze dynamic. Okay. That's really interesting. So what does this mean exactly? I just want to dive a little bit deeper into, if you already own a stock, does a short squeeze have an opportunity for those who already are in it to sell it potentially a big gain, or does it mean that you should get out when you see a short squeeze set up? It's going to depend on the individual investor and your risk tolerance and kind of where your position is relative to your entry point. But a short squeeze set up, a highly shorted stock for a shareholder, sets up volatility. You should expect volatility. There'll be big swings either direction. The stock price being depressed at lows and expectation for a bullish catalyst to trigger that short squeeze, you could see a market reversal in play. The short squeeze could actually signal the actual bottom of a downtrend and provide an all clear signal for investors to start building on those positions again. Okay. Good information. Thank you for diving into that education piece, Thomas. It's good for investors to know a little bit of the background before we get into the setups on the two stocks we're going to be covering today. If you're looking into some other names, you want a longer stock list of some other names to consider right now, make sure to check out this article on marketbeat.com right now. It's a story about five stocks that could benefit as AI sells off this summer. We're seeing that back and forth volatility in AI. These five names are a part of that sell-off story, not necessarily short squeezes, but they are some interesting names to look at buying. So if you want to get that free article right now, you can scan the QR code or go to the link in our description to get that article on marketbeat.com right now and look at those five names that are good to look at as the AI market is selling off this summer. All right, Thomas, let's get into these two stocks that you are seeing a short squeeze setup in. What is the first company you're looking at? Yeah, the first is Wendy's. And Wendy's has already experienced the first leg of its short squeeze. It's become a meme stock. It's a favorite of traders on Wall Street bets. It's seen some pretty significant double-digit increases over the last couple of weeks. But I think that this one's still in play. Short interest is still high. The chart action to me looks like they've been repositioning at this slightly higher level, which if you look at the chart is still very depressed from where the stock was trading just a year or two years ago. So to me, this is a short squeeze play that is really building to a much larger squeeze potential because there are some bullish catalysts also in play for this one that I think will help trigger some investment dollars later this year. Yeah, to see the kind of volatility that this stock has seen in just the last few weeks is really interesting that it's gotten the attention of basically traders or the market in some way. Let's look at the volume too. And what does volume tell you about a potential short squeeze setup? Well, the volume is telling, especially with the stock showing signs of support. It just shows you that the market is becoming more interested. And for all those shares sold short are being matched by shares being bought legitimately. And right now, it looks like there are more shares being bought legitimately than being sold short. So a support base is forming. Let's talk about people who might be legitimately buying this stock and not just trying to chase this squeeze of some kind. Why are people interested or why would investors be interested in Wendy's right now? What are those catalysts that you are watching for this company? So Wendy's is a good property. It is a viable player in fast food. It's one of the top three players, viable growth story. Over the last five, six, seven, eight years, it's had a revolving door of CEOs. They've made some missteps, lost connection with the consumer, and sales have been sluggish, growth has been sluggish and helped set up the potential for the short selling that's got the stock price where it is today. But right now, we have some catalysts in play. We've got a new CEO that has a track record of turning around ailing brands, and he's really leaning into some concepts that have worked well for some other brands in the fast food industry. And when you see this downtrend that this stock has had over the last couple of years, as a consumer, can this sometimes be a hint or a red flag that this company could potentially be going out of business? Could it point to a risk of potentially a downfall for the company? It could, but with this, I don't see that coming. Like I said, Wendy's is a well-established brand. It's got national recognition. It's just kind of lost its focus, lost its connection with consumers. But again, this new CEO, his name is Bob Wright, has a track record of reinvigorating brands. He reinvigorated Potbelly Corporation, which is a sandwich company, sold it at a huge profit, brought it back to growth, and we expect to see him do the same thing with Wendy's. So a lot of hope on this new CEO. Is that part of the price action that we've seen in the last few weeks and months with Wendy's, or is there something else going on with this stock kind of becoming a meme stock? Well, I think that it does have something to do with the CEO, because just having a high short interest doesn't make it meme quality. There's got to be some reason for the investors to want to get in. And I think from what I've seen on WallStreetBets, they seem to see the same things that I've been saying, which is just, it's a quality brand falling on hard times. Given the right catalyst, you can turn this company around. With that in play, the shorts should be wary, because there are catalysts in play. And with WallStreetBets trying to drum up interest and buying into that stock, the shorts are certainly in position to be squeezed out. Okay, so let's talk about what this means for the average investor watching this video right now. Do you want to get involved with Wendy's right now? Should you avoid it until the stock kind of levels out a little bit? What's your advice? I think now is not a bad time to get into Wendy's. I mean, it is elevated a little bit up off of its lows, but the downside risk is limited compared to the upside potential. Given the CEO, his lean into digitization and more modern facing store frontages and international expansion plans, Wendy's could easily rocket back up into the mainstream fast food investments and become another, you know, highly sought after name. I don't want to leave Wendy's without talking about what the analysts are saying. I know you're talking about catalysts, you're talking about a lot of hope on the CEO, but looking at what the analysts are saying, they don't seem to be pricing in a lot of movement in this stock. The consensus right now only gives this stock about 8% upside. It's basically trading pretty close to where consensus is. There's a couple of outliers that are higher, but for the most part, we're seeing price targets around $8, $6, $7, and those are price targets within the last couple of months. What do you think about that analyst action? Well, the analyst action I think right now is at a bottom. I think that what we're seeing is the trend the past few years, down trending sentiment ratings, down trending price targets. But with these catalysts, I see a lot of potential for the analysts to start reaffirming targets, to start seeing some more potential and more opportunity, become more optimistic and help put a bottom in the stock and help get the market to reverse. All right, interesting. So if you are somebody who likes to watch short squeezes, Wendy's is one to watch on this list. Let's get to that next stock that you are watching for a potential short squeeze right now. Right, the next one is AST Space Mobile. And this one I think is a tale of two stories. We've got short sellers really focused on the near term, which is a startup company with an emergent tech and high cash burn and potential for dilution. So that certainly sets up a scenario for short sellers. And you can see that in the stock price, it's well off of its highs, potentially could go lower. But again, there's the offsetting factor, which is the long term story, which to me provides bullish catalysts. And then there are also some near term bullish catalysts to help reinvigorate the market and get the buyers back into the fray here in the near term. This is a name that I have been a fan of for a while, not just because of what's happening in the chart, but just the idea behind the company of having, you know, cellular service that depends solely on satellites and not the traditional plan that we've seen so far. So I think the idea is interesting. And a lot of investors did really well with ASTS for a while. The stock was performing really strongly and it came down almost just as strong. So let's talk about for those stockholders who bought into ASTS on the uptrend and are now sitting maybe at a loss from where they bought into it. What advice do you have for them with this short squeeze set up? I think that this market is trending higher. We have a lot of volatility because we're still in the early phases. We're still in that startup phase where it's burning money and it's developing its satellite constellation. It's certainly exposed to execution risk. The loss of its Bluebird 7 satellite highlights that. The stock sold off in the wake of that. But then again, in the long term, there's that offsetting factor, which is the fact that this company is critical to 5G. It's seen as a critical stepping stone from earth-based operations to space-based operations. And in that light, it's got contracts already with 40 mobile carriers. Its business model isn't to be so much a mobile carrier on its own as infrastructure or service provider for these carriers. Virtually all 5G clients, all 5G customers globally could potentially be a customer of ASTS, given the fact that their actual carrier will be using ASTS infrastructure to provide their 5G cellular service. Looking at ASTS as a infrastructure play and not another cellular carrier is the right way to look at this company. It's absolutely building a new kind of infrastructure for cellular companies. The problem is the execution risk you've already talked about, and that is the incredible expense to build this infrastructure out. They have so many satellites that still need to get launched to build out that network. And even though those contracts are coming in, is that enough cash flow to support this company actually building that infrastructure and getting to that commercialization point? Yeah, the company is well capitalized. It's backed by strong institutional investment. We're looking at a pretty clear pathway to reaching revenue profitability. As far as execution risk, the loss of the Bluebird 7 satellite certainly set them back a little bit. But subsequent launches are going to be launching even more advanced technologies where the Bluebird 10, 11, 12 satellites are supposed to deliver up to double the data transmission speeds. So we have near-term hiccup with the loss of the satellite, but long-term, we're still gaining momentum. We're still gaining traction. It's just a matter of time to get those satellites in space and to get those contracts converting to revenue. We still have a lot to cover on the short-selling setup that we see in ASTS, and we're going to get into that story a little bit more in a minute. But I want to talk more just about this field of space. We've seen so many space stocks, not just ASTS, that have seen a huge downtrend right after the launch of SpaceX stock. And so I want to talk about why we're seeing space stocks like ASTS that were performing so well pull back so much right now. And if anything fundamentally changed, is there too much competition from a SpaceX? And is that why we're seeing a pullback in ASTS? I know SpaceX has Starlink, and some people have discussed that that is a potential huge competitor for ASTS. And why have these two major infrastructure players when you could have just one? What are your thoughts on that overall space picture and the competitive landscape for what ASTS is doing? Well, so generally speaking, weakness in space stocks is probably tied to SpaceX. Raising capital, selling these stocks to buy into this one, I think over time that will normalize, and the other space stocks will be able to continue rising, especially ones like AST SpaceMobile, which have such a large moat. Now you bring up SpaceX and Starlink as a potential competitor, but Starlink and ASTS are doing two completely different things. Starlink's technology is focusing on internet connections, it's using a different signal source, where ASTS is building and launching giant 5G satellites and putting them into space. So they're launching these massive supercluster arrays of 5G antennas that are able to directly connect to your phone here on Earth, and they're providing the same service that you would get from a cell phone tower, but in a space-based format, it enables 100% global coverage universally. I mean, there's just no way to not be covered with a satellite in space, especially with a large constellation giving coverage throughout the latitudes. You think about SpaceX and the commercialization of space, what ASTS is doing is providing that critical bridge from the ground to the near space ecosystem, which is where a lot of the commercialization is going to be taking place. I think that the discussion about SpaceX as a competitor is because they've already figured out Starlink, they could do the same for cellular. I think that's a guess we had on talking about that just a little bit. Another competitor to talk about in this landscape potentially is Rocket Lab just recently purchasing Iridium. Talk about them as a potential competitor in this space. SpaceX certainly is a viable competitor, but my research shows that they're a good two to three years behind in their technology as far as being able to compete in the 5G space. Now Iridium also is a satellite phone service, but it is a much different technology. It's more comparable to SpaceX's technology where you're having to buy special equipment to receive special signals. It's not the same ubiquitous coverage as what ASTS does, which just fits seamlessly into the already existing 5G network. You don't have to buy new equipment. You don't need to buy a new service. All you need to do is tell your provider, I want to use the satellite. I bet you if you go right now on your phone, you'll be able to find without too much ease, a choice, an option that says satellite. And that's what ASTS is doing is providing that direct to your phone satellite connection. Yeah, I have absolutely used that feature, especially again out hiking. One of my favorite things I've been out on a mountaintop, use a satellite to connect on your phone. I've used that feature. I don't know if anybody else has seen that on their phone, but yeah, it's absolutely there. And that's why I love this concept so much. So what I'm hearing from you is even looking at this competitive landscape of other players potentially entering this market, ASTS has a real moat and has a real potential for commercialization above some of the other names that are out there. And so there's some true catalysts that could be coming. So given that, why are we seeing this short squeeze set up right now? Well, like I said, they're focused on the near-term headwinds, which is just execution and cash burn. Those are certainly risks, certainly reason to sell short. There could be other opportunities for them to short because there's still going to be execution risk moving forward, but those are going to diminish quarter by quarter by quarter as we get more satellites in space and the company is able to start converting its backlog into revenue. So let's talk about what this means for investors of who are interested in ASTS, whether they already own it, maybe they're looking to add some more. Looking at where this stock is right now, the most recent downtrend that we've had, is this a buying opportunity to add some more ASTS right now? Is it still a potential for more volatility where the downside could be even further yet? Well, there's absolutely potential for more volatility, but I do think ASTS has pulled back to an attractive entry point. Investors should just expect volatility. Don't chase prices, wait for it to come back to you. Pullbacks would be entry points and price peaks would be good places to take profits or maybe to try to lock in gains using options. So if that short squeeze setup is a thing, what does that mean for people who might own ASTS right now? What do you expect that short squeeze to potentially do to the stock? And then what kind of timeline could we be looking at? The next visible catalyst for these stocks are their upcoming earnings reports, which are due out in early August. I expect to see them reveal progress on their strategy execution, solidifying their outlook for revenue and for profitability. To me, that would be a trigger for short covering, if not a squeeze. So what I see potentially happening over the next four to eight weeks is just more impetus for the shorts to start getting out of the market with the potential for a short squeeze trigger to emerge. Yeah. And what does that short squeeze trigger mean for investors? It means that there could be a really robust stock price increase shortly afterwards. All right. So be on the lookout for some potential gains coming if that short squeeze does play out the way that you were talking about. I want some advice here for investors of if they should take advantage of selling some of their shares, if that spike does come through the ups and downs of volatility, or if there is a real case here for just buying and holding ASTS for a while, how long could that stock story be before you really see the true growth that investors could be seeing from this company? Oh, well, investors looking for a buy and hold play, this stock could play out over the course of decades. It's certainly well positioned to be the dominant force in space-based 5G services. We're looking at a long runway of highly visible revenue and cash flow, which to me, translates into capital returns, buybacks and dividends. What we have here is a budding buy and hold must own capital return machine that could potentially trend higher over the long term. It's not just about the ups and downs over the next few weeks and months. It's really looking at long term, five years plus. Well, that's what the short squeeze trigger really is. It's news that would affirm that long term outlook. Right now, the shorts are focused on the risk and the near term. When they start looking at the long term as a more viable, realistic option, they'll get out of the market real fast. Great conversation on short squeeze potentials today, Thomas, and also just a good deep dive into these two names. Let us know what you think in the comments about these names. And if you want to hear more about the space story and this recent pullback and where the whole SpaceX story could be headed, make sure to watch this video. It's a really interesting conversation about a theory of Elon's empire kind of combining all of his companies into one. It's Luke Lango from InvestorPlace, and he's got a really great breakdown of the whole space economy in this video. You can watch that full interview here.