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FA Center: You might think bearish sellers have popped the market’s bubble, but these stocks are still inflated


Don’t expect a replay of the 2021 meme-stock short squeeze. Some investors are, given that short-sellers have boosted their bets against GameStop

and AMC Entertainment Holdings

In January 2021, it became increasingly difficult for short-sellers to find shares to borrow to sell short. Those who wanted to cut their losses had to pay higher and higher prices to cover. Back then, GameStop’s stock skyrocketed more than 2,700% in less than a month’s time. AMC’s stock jumped 966%.

Nowadays, GameStop’s short interest (shares sold short) as a percentage of its total float has risen to 24.5%, according to FactSet, the highest in a year. AMC’s is right behind at 21.3%.

The reason I doubt another huge short squeeze is imminent traces to academic research into stocks that are most likely forming bubbles which look about to burst. During last year’s short squeeze, GME and AMC soared into bubble territory, and even though both stocks have fallen significantly since then, the deflation of their respective bubbles is most likely not yet complete.

Entitled “The Dynamics of Disagreement,” the academic study was conducted by three finance professors: Kent Daniel of the Columbia Business School, Alexander Klos of Germany’s Kiel University, and Simon Rottke of the University of Amsterdam. Daniel if a former Goldman Sachs’ co-chief investment officer.

To identify bubble candidates, the researchers focused on high-flying stocks, about which the market is particularly inefficient. In such cases the market’s normal checks and balances are diminished, thereby allowing prices to deviate significantly from fair value. When such stocks’ bubble burst, the decline can be long — up to five years, according to the study.

Specifically, the professors focused on a group of stocks whose trailing 12-month returns are higher than all other publicly traded stocks, and for which relatively few shares are available in the share-lending market. That makes it harder for traders to find shares to borrow and then sell short, with the result that the normal gravitational pull exercised by short-sellers will be largely or even mostly absent. Without that gravitational pull, chances are good that such stocks will soar into bubble territory.

When I reported on this research for Barron’s in August 2021, both GameStop and AMC were among likely bubble candidates — a group the professors refer to as “constrained winners.” Since that column appeared, shares of these two companies have fallen 27.9% and 67.8%, respectively, versus an 15.3% drop in the S&P 500
(These calculations include reinvested dividends.) The average return of the 25 constrained winners listed in the Barron’s column is a loss of 61.4%. (All returns through June 13.)

Current bubble candidates

To compile a list of current constrained-winner stocks, I as closely as possible followed the professors’ approach, courtesy of FactSet. Out of all exchange-listed U.S. stocks, 40 earned this dubious honor. This total is down from 131 last August, suggesting that there are a lot fewer bubble candidates nowadays.

The table below lists 25 likely bubble candidates with the highest trailing 12-month returns.


Market Cap (in $millions)

12-month return

Houston American Energy Corp. (HUSA)



HighPeak Energy Inc (HPK)



Comstock Resources, Inc. (CRK)



CVR Partners, LP (UAN)



SilverBow Resources Inc (SBOW)



Value Line, Inc. (VALU)



Focus Universal Inc (FCUV)



Ring Energy, Inc. (REI)



Albertsons Companies, Inc. Class A (ACI)



Indonesia Energy Corporation Limited (INDO)



Penske Automotive Group, Inc. (PAG)



RPC, Inc. (RES)



Pilgrim’s Pride Corporation (PPC)



Lightwave Logic, Inc. (LWLG)



SigmaTron International, Inc. (SGMA)



Datto Holding Corp. (MSP)



Cyxtera Technologies, Inc. Class A (CYXT)



DCP Midstream LP (DCP)






Marin Software, Inc. (MRIN)



Foghorn Therapeutics, Inc. (FHTX)



Euroseas Ltd. (ESEA)



Gores Guggenheim, Inc. Class A (GGPI)



East Stone Acquisition Corp (ESSC)



Tootsie Roll Industries, Inc. (TR)



(Market value and return figures as of June 13, 2022)

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

Plus: Short sellers raise bets against GameStop and AMC to highest level in a year as Wall Street sees more pain ahead

Also read: Those who buy stocks the day the S&P 500 enters a bear market have made an average of 22.7% in 12 months

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