Traders may flock to these seven Hindenburg Research names as future meme stocks
Hindenburg Research has become one of the leading short seller firms on Wall Street over the past year. Hindenburg Research made a huge impact with a crushing short report on Nikola Motors (NASDAQ:NKLA). NKLA stock collapsed. Since then, Hindenburg has remained active in the short-selling game, and it has generally had more successes than failures.
That’s especially laudable given that this is a terrible market for short sellers. Notable short sellers such as Andrew Left of Citron Research have gotten out of the activist shorting game, citing increasingly hostile conditions. That’s because traders such as the r/WallStreetBets crowd are specifically looking at heavily shorted stocks for the next big win. The bigger the short interest, after all, the bigger the short squeeze will be if the stock starts moving.
Reddit traders have made a particular sport out of going after well-known short sellers such as Melvin Capital. With that in mind, perhaps Hindenburg Research’s picks will become the next set of battleground stocks for traders. As such, here are seven recent Hindenburg Research picks that might become meme stock sensations:
- Nikola Motors
- Clover Health (NASDAQ:CLOV)
- Lordstown Motors (NASDAQ:RIDE)
- Ormat (NYSE:ORA)
- Ebang (NASDAQ:EBON)
- PureCycle Technologies (NASDAQ:PCT)
- GrowGeneration (NASDAQ:GRWG)
Hindenburg Research Short Positions: Nikola (NKLA)
Any discussion of Hindenburg Research should probably start with Nikola. It was Hindenburg that released the bombshell report exposing all sorts of funny business at Nikola. That includes the infamous rolling the truck down the hill stunt. Shortly after Hindenburg got involved, Nikola’s founder Trevor Milton stepped down, and the company had to pivot its business strategy dramatically. NKLA stock crashed, and it goes down as a big win for Hindenburg.
But could Nikola’s fortunes change? The stock is up sharply over the past month. Short interest remains through the roof, and thus you have to be looking at NKLA stock as a potential squeeze target. Nikola is on track to start selling vehicles over the next few quarters, and its Arizona manufacturing plant is rapidly being built.
Nikola engaged in some shady behavior previously, but it may well turn into a success now nonetheless. Short sellers are playing a dangerous game sticking with their bets against the electric vehicle (EV) firm.
Clover Health (CLOV)
If Nikola was Hindenburg’s greatest hit last year, Clover is the focal point for 2021. Additionally, Clover remains an open question as to which side will prevail.
Hindenburg Research published on Clover earlier this year. Its report documented a Department of Justice inquiry into Clover’s business practices that the company failed to disclose to the public. This was also a slam against the so-called “King of SPACs,” Chamath Palihapitiya. Hindenburg and others used the situation to suggest that Palihapitiya hadn’t done sufficient due diligence into his SPAC deals.
Clover stock initially plunged following the Hindenburg Research report. However, the tables have now turned. In May, Clover became a meme stock, and shares quadrupled off the lows before slipping back a bit. At this point, it’s too early to tell how Clover will play out. It’s definitely one that will be a top trading stock in coming weeks and months.
Hindenburg Research Short Positions: Lordstown Motors (RIDE)
Nikola wasn’t Hindenburg’s only foray into the EV space. A couple months ago, it also went after Lordstown Motors. That report focused on Lordstown’s reported pre-orders. The short report makes a compelling argument that Lordstown used some sketchy tactics to artificially boost its pre-order numbers. There were also pointed concerns about CEO Steve Burns’ track record.
The Hindenburg Research argument is forceful. On the other hand, you can make a similar argument about a bunch of EV companies. So many of them have little or no commercial revenues yet. It comes down to prototypes and future expectations. So is the short argument around Lordstown really all that distinctive? Traders have started bidding up a lot of controversial EV stocks once again. RIDE stock could enjoy a similar resurgence.
Hindenburg went after Ormat with a report titled “Dirty Dealings in ‘Clean’ Energy.” The company, as that headline hints, is in renewable energy. Specifically, Ormat is one of the world’s leaders in deploying and operating geothermal power plants. Geothermal power uses energy from the earth’s crust — often found near tectonic plate boundaries or volcanoes — to generate electricity.
Up until now, geothermal has been a niche power source. Thermal energy is abundant in the earth’s crust, but few of the reserves have proven ideally situated and large enough to be economically competitive. As such, companies such as Ormat have had to go to far-flung locales to build profitable geothermal operations.
Specifically, Ormat’s leading markets are Guatemala, Honduras and Kenya. Hindenburg alleges that Ormat has engaged in broad and systemic corrupt practices in order to secure its geothermal contracts and licenses in those countries. Some of the evidence presented is quite concerning.
That said, is it all that surprising? Let me tell you, I learned Spanish in Guatemala in a town in-part powered by a geothermal plant. If you’d told people there that corruption was involved in that plant’s development, I don’t think it would have shocked anyone. Guatemala ranks extremely poorly in government integrity. Now sure, with enough pressure, perhaps U.S. regulators could be motivated to take action against Ormat. However, consider me skeptical that this is a pressing issue for the government.
So will ORA stock turn into the next big short squeeze? The short interest is high, at 9%. The company is reasonably profitable, and trades at 38x forward earnings. Investors love green energy. And, shares are down sharply since the Hindenburg report. So this could very well work as a momentum trade. Of the stocks on this list, Ormat is one of the most promising.
Hindenburg Research Short Positions: Ebang (EBON)
Ebang completed its initial public offering (IPO) last year. It came to public as a leading manufacturer of Bitcoin (CCC:BTC-USD) mining gear. Since then, it has raised a bunch of capital and used that to go into other crypto ventures, such as launching its own mining initiatives.
Hindenburg says that there are many problems, however. It claims that much of the fundraising has gone into the pockets of insiders rather than the company. Hindenburg also noted that Ebang’s prior attempts to complete an IPO in Hong Kong failed, and that the company had been linked to a potential Ponzi scheme in order to inflate revenues. This may not be quite as crazy as it sounds. There are plenty of complicated financial dealings in many things related to cryptocurrencies, after all.
So how does Ebang fare as a potential meme stock? The name, Ebang, is certainly captivating enough. And traders have loved cryptocurrency stocks in 2021, although crypto has lost its luster over the last month. Still, the allegations against Ebang are pretty harsh, and I’m not sure traders will want to gamble too much on a largely unknown Chinese cryptocurrency play.
PureCycle Technologies (PCT)
Please note, do not confuse this Purecycle with the Colorado water utility also named Pure Cycle (NASDAQ:PCYO). PCYO stock fell as well around the time of the Hindenburg allegations, but there is no connection between the two firms.
So what’s the deal with PureCycle Technologies? The company claims to have innovative solutions for the plastics recycling industry. The market initially gobbled it up, with PCT stock rising as much as 250% from the initial SPAC price. However, the stock has now given back most of those gains.
Hindenburg played a big part in that. The day Hindenburg published its report on PCT stock, shares tanked from $25 to $15. Hindenburg’s report played up the troublesome connections in terms of fundraising. It called into question the independence and integrity of the banks that underwrote the deal, along with highlighting the poor track record of the management team. There’s also a discussion around the plausibility of the company’s plastic recycling technology.
Hindenburg seems to make a pretty compelling argument. Also, the stock has bounced back meaningfully since that decline, so there’s not as much of a buy-the-dip opportunity either. In addition, the short interest is only at 5% of the float, which means the squeeze potential is pretty low. It seems unlikely that PCT stock will become a major meme trade.
Hindenburg Research Short Positions: GrowGeneration (GRWG)
GrowGeneration has been one of Hindenburg Research’s biggest misses, at least so far. Hindenburg suggested that GRWG stock had 70% downside last August, when the stock was around $15. Instead of dropping to $5, as that would imply, GrowGeneration has soared to $42 now.
What’s going on here? GrowGeneration is a roll-up of mom-and-pop gardening shops. The business was originally founded out of Colorado, which should give you a hint; this is a cannabis play. GrowGeneration offers supplies for general gardening; however, much of it is focused on hydroponics and gear suitable for cultivating marijuana.
Hindenburg pointed out a whole litany of potential issues with the company. Many of these are around management and its unsavory track record at past companies. Even granting that, however, GrowGeneration has continued to soar. Surely, the pandemic helped. People took up new hobbies, such as gardening, to improve their homes during quarantine. And recreational cannabis is a fast-moving market. GRWG stock is trading at 80x forward earnings, and doesn’t look like a great investment on traditional fundamental value terms. But perhaps meme traders will turn to GRWG stock to spruce up their portfolios.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
Article by Ian Bezek, InvestorPlace