4 Stocks Ripe for a Zika-Related Short Squeeze

Inovio Pharmaceuticals Inc (NASDAQ:INO), Cerus Corporation (NASDAQ:CERS), Intrexon Corp (NYSE:XON), and American Vanguard Corp. (NYSE:AVD)

Aug 4, 2016 at 12:43 PM
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The Zika virus has been all over headlines recently, after the Centers for Disease Control (CDC) issued a historic travel warning to would-be visitors of a Florida neighborhood, where no fewer than 15 people contracted Zika via local mosquitoes. In addition, the CDC advised women who are pregnant or trying to become pregnant to not attend the 2016 Summer Olympics, which officially kick off tomorrow in Rio de Janeiro, Brazil -- a city that "is experiencing an outbreak of the Zika virus." Against this backdrop, here are four heavily shorted stocks to watch if you think Zika-phobia is just beginning: biotechs Inovio Pharmaceuticals Inc (NASDAQ:INO), Cerus Corporation (NASDAQ:CERS), and Intrexon Corp (NYSE:XON), as well as insecticide maker American Vanguard Corp. (NYSE:AVD).

INO is currently testing its Zika vaccine in humans. The stock has more than doubled since its Jan. 20 two-year low of $4.50, though the $11.50 region has emerged as a speed bump of late. INO was last seen 1.5% higher at $9.75, and ahead of next week's earnings on Aug. 8, short interest accounts for nearly 19% of the stock's total available float. At INO's average pace of trading, it would take more than 12 sessions to buy back these bearish bets -- ample fuel for a short-squeeze situation.

CERS -- which just scored a big cash infusion from the Biomedical Advanced Research and Development Authority (BARDA) -- will report earnings after the close tonight. Yesterday, analysts at Cantor Fitzgerald suggested investors buy shares of CERS ahead of both earnings and the Olympics. "CERS offers the only FDA approved pathogen inactivation technology and was recently included in the FDA guidance document for reducing the risk of transfusion-transmission of Zika," the analysts wrote. Further, Cantor estimates that "an outbreak in the Gulf states ... may pull forward $26.2M in revenues into 2017, or sooner." On the charts, CERS just hit a two-year high of $7.64 earlier this week, and was last seen hanging in the $7.12 region. A solid earnings showing tonight or escalating Zika fears could trigger a short-covering rally for the stock, with short interest representing 18 days' worth of pent-up buying demand, at CERS' average pace of trading.

XON develops biotechnology to suppress harmful mosquitoes. The stock has already added nearly 13% in August, last seen at $28.54, and is set to topple its 20-week moving average for the first time since mid-April -- before a scathing Seeking Alpha report sent the shares back to test the $24 region. Like INO and CERS, XON is surrounded by skepticism ahead of earnings next week, due Aug. 9. Short interest accounts for almost 29% of the equity's total available float, and would take about 14 days to repurchase, at XON's average pace of trading.

AVD just notched a two-year high of $17.92, a day after reporting earnings, and after Florida said it will use the company's Naled chemical to fight Zika. The stock is now up 25% in 2016, and could have room to run if skeptics start to abandon ship. Short interest represents two weeks' worth of pent-up buying demand, at AVD's average pace of trading. Plus, of the four analysts following AVD, only one deems it worthy of a "buy" or better endorsement -- leaving the door wide open for future upgrades or positive initiations.


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