MW These 20 stocks are likely to be losers no matter what the market does

By Mark Hulbert

Difficult-to-short stocks are often greatly overvalued

Certain stocks are likely to lose money, even if the U.S. stock market stops declining and starts rising again.

No one knows if the stock market decline that began on Feb. 19 will be the beginning of a major bear market, of course. But a recent study found that certain stocks are good bets to lose money, regardless of how the overall stock market performs. The study, entitled "The Dynamics of Disagreement," was conducted by Kent Daniel of Columbia Business School, Alexander Klos of Germany's Kiel University and Simon Rottke of the University of Amsterdam. (Daniel is a former Goldman Sachs co-chief investment officer.)

The professors found that stocks which are hard to sell short are good bets to lag the market. These are stocks that, for whatever reason, are difficult or expensive to borrow in the share-lending market - something that must be done prior to selling them short. As a result, the researchers argue, these stocks will not have been sold short to as great an extent as they would have been had they been easier and cheaper to borrow. And this in turn means they likely will be overpriced.

A good illustration is provided by GameStop $(GME)$ in early 2021. After the company was discovered by the meme-stock crowd and its shares started soaring, many would-be short sellers found it hard or even impossible to borrow GameStop shares. This enabled the stock to rise further than it would have if it had been more easily sold short, rendering it a good bet to be a market laggard going forward. Four years later, GameStop stock is 81% lower than its split-adjusted high in January 2021.

The study's authors identified two groups of hard-to-short stocks that are especially good bets to underperform. The first, which they called "Constrained Winners," are hard-to-short stocks that have risen the most over the trailing year - such as GameStop. The professors found that these stocks on average lag the market for five subsequent years.

The second group, so-called "Constrained Losers," are those hard-to-short stocks that have lost the most over the trailing year. The professors found that these stocks also lag the market, but for a shorter length of time - the subsequent 12 months rather than five years.

On several occasions in recent years I've applied the study's methodology to stocks within the S&P 1500, constructing updated lists of Constrained Winners and Constrained Losers. The most recent list was published in early April 2024, and the stocks mentioned have performed as expected. The Constrained Winners list produced an average loss of 8.4% (through March 10), while the Constrained Losers produced an average loss of 9.3%. Over the same period, the S&P 500's SPX total return was a gain of 9.3%.

Below is a list of current Constrained Winners and Constrained Losers. To compile the lists, I first applied the professors' criteria to the stocks within the S&P 1500 index. The Constrained Winners list below contains the 10 stocks satisfying the criteria that have the highest trailing 12-month returns. These include Lumen Technologies (LUMN), Texas Pacific Land $(TPL)$, GameStop, and Hims & Hers Health. $(HIMS)$. The Constrained Losers list contains the 10 with the worst trailing 12-month returns. These include Celsius Holdings $(CELH)$, Moderna $(MRNA)$, Super Micro Computer $(SMCI)$, and Cleveland-Cliffs $(CLF)$.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

-Mark Hulbert

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March 13, 2025 07:45 ET (11:45 GMT)

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