2 Stocks Under $5 That Could Squeeze Short Sellers

American Superconductor and DHT Holdings stocks could be flashing "buy"

Jul 5, 2017 at 2:54 PM
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In the wake of the recent stock market breather, and with expectations for a volatility pop approaching fever pitch, some speculators may be hesitant to devote a lot of cash to equities. Of course, we recommend long call options for bulls looking to get more bang for their buck, but for traders seeking low-dollar stocks -- or "penny stocks" -- a couple of equities under $5 might be flashing "buy": renewable energy issue American Superconductor Corporation (NASDAQ:AMSC) and oil tanker operator DHT Holdings Inc (NYSE:DHT).

Specifically, both AMSC and DHT recently retook their 50-day moving averages after a lengthy period below this trendline. Per Schaeffer's Senior Quantitative Analyst Rocky White, a recross of the 50-day has been a decent "buy" signal for stocks in the past, and resulted in an average one-month return of 2.15% for stocks in 2016.

American Semiconductor stock has muscled roughly 21% higher since touching an annual low of $3.88 on May 18, and has outperformed the broader S&P 500 Index (SPX) by 16 percentage points in the past 40 sessions. The shares on Monday topped their 50-day trendline for the first time since a late-April bear gap, a result of the company's lowered quarterly revenue guidance. AMSC stock is now attempting to close a bear gap from early May, when American Superconductor priced a public offering at $4 a share.

The security was last seen 1.9% lower at $4.68, but if it resumes the recent rebound, a short squeeze could propel AMSC stock even higher. Short interest accounts for 21% of American Superconductor's total available float, and would take a whopping 18 days to buy back, at the equity's average pace of trading.

DHT has added almost 14% since its June lows, and on Monday notched its first close above the 50-day since early May, as energy stocks rallied with oil prices. Further, more than 10% of the stock's float is dedicated to short interest, representing about seven sessions' worth of pent-up buying demand, at DHT's average daily trading volume.

However, oil prices are back in the red today, and DHT Holdings stock is down 2.2% at $4.30. What's more, oil stocks have tended to underperform in the second half of the year, and Schaeffer's Senior VP of Research Todd Salamone noted that "the energy sector is still one to avoid, despite its bounce last week." As such, penny stock seekers should proceed with caution.

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