3 Highly Shorted Stocks Under $5 Bought Up By Hedge Funds

Do you like to follow the buying trends of smart money institutional investors? We created a stock list with that idea in mind.

We began by screening for stocks trading under $5 a share with bearish sentiment, with float shorts above 10%. High float short is a sign of bearish sentiment among short sellers, who benefit when share price falls. We further screened for increase in shares shorted month over month, a sign that the bearish sentiment is still escalating.

We then screened for those with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.

If hedge funds are correct in their optimism, short sellers might be forced to cover their short positions quickly as share prices rise, lending possibility to a short squeeze, which sends price even higher.

Short sellers are pessimistic about future stock price while institutional investors are bullish. Do you think hedge funds are calling it right on these names? Use this list as a starting point for your own analysis.

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2. MannKind Corp. (MNKD, Earnings, Analysts, Financials): Focuses on the discovery, development, and commercialization of therapeutic products for diabetes and cancer.

Market cap at $1.09B, most recent closing price at $3.76. Float short: 19.49%.

Net institutional purchases in the current quarter at 13.2M shares, which represents about 8.67% of the company's float of 152.29M shares.

Shares shorted have increased from 32.13M to 40.10M over the last month, an increase which represents about 5.23% of the company's float of 152.29M shares. Days to cover ratio at 9.4 days.

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