Key Takeaways:
Wolfe Research has identified 14 stocks as prime candidates for short selling, citing risks from the market's recent 12 percent surge and a late-stage economic expansion.
"You’re seeing a greater number of bankruptcies already,” says George Schultze of Schultze Asset Management, which has a long/short equity strategy.
One of Wolfe's screens identified expensive stocks with volatile gross margins, including Tesla, Ford Motor, Carvana, DraftKings, Norwegian Cruise Line, GameStop, and Starbucks. Another screen focused on companies with adjusted earnings per share at least 10 percent above GAAP EPS for most of the past year, featuring Chewy, DoorDash, Wayfair, Etsy, Planet Fitness, Las Vegas Sands, and e.l.f. Beauty.
The S&P 500 has rallied 12% from its late March lows, driven by falling oil prices and hopes of stable interest rates. However, with only 358 of the S&P 500's constituents in the green over the past year, the rally may not be broad-based.
The analysis from Wolfe Research comes as the S&P 500 has climbed 12% from its late March bottom, a rally spurred by easing oil prices and expectations of a stable Federal Reserve policy. Chief Investment Strategist Chris Senyek's screens highlight vulnerabilities that could make some high-flying stocks susceptible to declines.
The first group of stocks flagged by Senyek are those in the top quintile for both price-to-earnings multiples and gross margin volatility. This combination suggests these companies lack consistent pricing power, making their earnings and stock prices vulnerable to any disappointments. This list includes:
A second screen identifies companies where adjusted earnings per share have been more than 10% higher than GAAP EPS in at least eleven of the past twelve quarters. Wolfe Research notes that any negative signal on demand or competitiveness could force the market to question their path to true profitability. This list includes:
The bearish calls stand in contrast to a market that has rallied significantly. However, the analysis suggests that underlying risks, including a late-stage economic expansion and still-elevated energy costs, could challenge the rally's sustainability. The number of Chapter 11 bankruptcies rose 67% to 814 in February compared to the same month in 2025, according to the American Bankruptcy Institute, adding to the cautious outlook.
This analysis from Wolfe Research provides a clear list of candidates for investors looking to hedge against a potential market downturn. The next major catalyst for these stocks will be their upcoming earnings reports, where margin stability and profitability will be under intense scrutiny.
This article is for informational purposes only and does not constitute investment advice.
