10 Beaten-Down Stocks That Investors Are Starting to Like Again

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Twitter stock’s 20% gain since

Tesla CEO Elon Musk disclosed his 9% plus stake in the social media platform got Barron’s thinking. Are there other beaten-up stocks that could reward investors with big bounces?

We didn’t look for other stocks where the richest person in the world might take a stake, dramatically changing the investment outlook. Finding companies where investor sentiment was low, but showing signs of improvement, seemed a more realistic plan.

Investors were downbeat about

Twitter (ticker: TWTR) before Musk arrived. The stock’s short-interest ratio—a measure of bearishness—was about 5.5%, above the 4% average for shares in the

Russell 1000 index.

The short-interest ratio is essentially the amount of stock borrowed and sold short by investors betting on price declines, compared with the total shares available for trading. The available-for-trading category typically excludes stock held by insiders or founders because those shares don’t change hands often.

Before Musk weighed in, the bears on Twitter stock had it right. Shares fell about 38% in the 12 months just before Musk’s stake was disclosed, while the

S&P 500
and

Nasdaq Composite
rose about 13% and 6%, respectively, over the same span.

Guessing what Musk or Warren Buffett might buy next is a tall order, but it is possible to identify beaten-up stocks where sentiment among investors has begun to improve. Falling short interest indicates that short sellers—people bearish on the shares—are beginning to close out their positions.

The 10 stocks we found, in no particular order, are the defense contractor

Mercury Systems (MRCY); the restaurant-equipment maker

Middleby (MIDD);

Qurate Retail (QRTA), the operator of

QVC shopping;

Nektar Therapeutics (NKTR), a biopharma company; high-end cooler maker

Yeti (YETI); the online real estate company

Zillow (Z);

nCino (NCNO), a software provider;

Vornado Realty Trust (VNO);

Whirlpool (WHR); and the trucking company

Ryder Systems (R).

Company, Ticker	Market Cap (bil)	Short Interest	2022E P/E Ratio	12-Month Change
Mercury / MRCY	$3.7	6.7%	24.6	-21.8%
Ryder / R	4.2	9.1	5.5	-17.9
Whirlpool / WHR	10.4	13.9	6.8	-24.8
Vornado / VNO	8	6.9	29.4	-9
nCino / NCNO	4.7	6	n/a	-40.4
Zillow / Z	12	7.9	28.7	-67.7
Yeti / YETI	5	9.2	20	-32.4
Nektar / NKTR	1.1	11.4	n/a	-69.2
Qurate / QRTEA	1.7	7.5	3.2	-56.2
Middleby / MIDD	9.3	9.4	14.9	-9.8

E=estimate

Source: Bloomberg

Those 10 stocks are down about 12%, on average, over the past month, and 36% over the past year. The average short interest ratio is 8.7%, more than double the average for the companies in the

Russell 1000
stock index, but a bit more than 5% below its level of 9.2% a month ago.

Of course, the fact that short interest is falling only captures part of the picture about these stocks. Each company has its own complex story. And as ever, stock screens such as this one only offer a starting point for more work.

Yet the evidence is clear that at least some investors that have placed negative bets—market participants that presumably know the stocks well—have decided to take some of their chips off the table. That could be a signal that the worst is past.

Write to Al Root at [email protected]