5 Stocks Poised to Pop on Earnings
This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short timeframe that your profits add up quickly.
That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.
Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move. That's why it can be worth betting prior to the report - buy only if you have a very strong conviction that the stock is going to rip higher, and its acting technically very bullish.
With that in mind, here's a look at several stocks that could experience big short squeezes when they report earnings this week.
My first earnings short-squeeze trade idea is biotechnology and drugs player Cubist Pharmaceuticals (CBST) , which is set to release its numbers on Wednesday after the market close. Wall Street analysts, on average, expect Cubist Pharmaceuticals to report revenue of $209.42 million on earnings of 44 cents share.
This company missed Wall Street estimates last quarter after beating estimates in the prior two. In the fourth quarter of last year, its profit dropped 53.1% to $6.8 million or 11 cents per share, to $14.6 million or 26 cents per share, from the same period a year ago. Revenue jumped 31.6% to $212.9 million from $161.8 million. Cubist Pharmaceuticals is looking to report its fifth-straight quarter of revenue increases this week.
The current short interest as a percentage of the float for Cubist Pharmaceuticals is very high at 17.6%. That means that out of the 62.68 million shares in the tradable float, 11.04 million shares are sold short by the bears. The bears have also been increasing their short positions from the last reporting period by 2.6%, or by about 279,000 shares.