The U.S. Federal Reserve conducting a 50 basis point interest rate cut was the catalyst that stocks needed to bounce back from a period of stagnation. After weeks and months of uncertainty about what the Fed would do, certainty is slowly creeping into the market, helping bolster investor sentiments.
With the S&P 500 back to record highs, it’s the Nasdaq 100 that appears to be making the most significant moves, having gained more than 3% in the aftermath of the 50 basis point interest rate cut. The spike in the tech-heavy U.S. index is a clear indicator that tech stocks are well poised to edge higher after weeks of stagnation.
The interest rate cut is expected to positively impact short-term bank borrowing costs, making it easy for people and businesses to access cheap capital to fuel economic activity that has been slowing in recent months. Additionally, it should positively impact various consumer products like mortgages, auto loans, and credit cards.
While there were concerns that the U.S. economy was slowing due to disappointing employment data and a slowdown in the manufacturing sector, Fed Chair Jerome Powell reiterated that the 50 basis point cut was all about ‘recalibrating’ the economy.
Source: Pexels
Initially, there were concerns that the FED coming through with a 50 basis point would fuel fears about the health of the U.S. economy and consequently rattle stocks. However, that was not the case as stocks rallied, signaling that investors were optimistic about the economy and long-term outlook in the market.
Tom Porcelli, top U.S. economist at PGIM Fixed Income Policy, thinks the Fed policy was set up to handle much more inflation. Now that inflation is getting close to the target, the Fed can start to ease off on the tight money they’ve been applying. Consequently, the aggressive interest rate cut is not because we’re heading into a recession but because we want to keep the economic growth going.
While the focus will be on stocks that have been edging higher for the year, the focus is slowly shifting to stocks that have bottomed and that market participants are bearish on. Stocks that have been battered to 52-week lows are increasingly turning out to be bargains, especially on the monetary policy improving after months of uncertainty. Nevertheless, it is unclear whether stocks with high short interest rates will bounce back after coming under immense pressure over the past nine months.
With the Fed cutting interest rates with a bang, CNBC commentator and Fast Money host Jim Cramer believes investors should start paying attention to stocks well poised to benefit from a low interest rate environment. Some stocks to consider are companies providing products and services that depend on consumers’ purchasing power.
With that, let’s take a look at the worst 52-week low stocks to buy now, according to short sellers.
Our Methodology
We used the Finviz screener to find stocks that were trading near their 52-week lows and that had high short interest (at least 5%). We then picked the stocks with the highest short interest and ranked them in ascending order of this metric. We have also added the hedge fund sentiment for these stocks.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Number of Hedge Funds holding stakes as of Q2 2024: 5
Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) is a clinical-stage dermatology therapeutics company that develops medications for the treatment of skin diseases. Its product pipeline comprises YCANTH (VP-102) for treating common warts and has completed a phase II clinical trial to treat external genital warts.
It remains one of the worst 52-week low stocks to buy now, according to short sellers, owing to growing concerns about the company’s ability to turn a profit. In its recent quarter, it posted a loss of $67 million, taking its trailing 12-month loss to $87 million.
The soaring net loss has been the catalyst behind Verrica Pharmaceuticals Inc. (NASDAQ:VRCA) ‘s soaring short interest, which stands at 6.99%. Likewise, the gross profit margin has been negative, at -60.48%, suggesting profit challenges.
Nevertheless, the company is showing signs of underlying growth in product revenue for its flagship product, YACNTH, improving to $4.9 million. Total revenues in the second quarter totaled $5.2 million. Nevertheless, analysts at RBC Capital reduced their price target on the stock to $13 from $14, citing weakness on the launch of the company’s flagship YCANTH for molluscum contagiosum.
In the second quarter of 2024, 5 hedge funds in the database of Insider Monkey held stakes worth $84.51 million in Verrica Pharmaceuticals Inc. (NASDAQ:VRCA), up from 2 in the preceding quarter worth $65.71 million.
Overall VRCA ranks 15th on our list of the worst 52-week low stocks to buy. While we acknowledge the potential of VRCA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VRCA, check out our report about the cheapest AI stock.
