Is Summit Therapeutics Inc. (SMMT) the Best High Short Interest Stock to Invest In Now?

We recently compiled a list of the 7 Best High Short Interest Stocks To Invest In. In this article, we are going to take a look at where Summit Therapeutics Inc. (NASDAQ:SMMT) stands against the other high short interest stocks.

What's Going On in China?

China's housing market, once a booming sector, has experienced a significant downturn in recent years. To revitalize the market, the government recently implemented a series of policy changes aimed at stimulating demand. These changes include easing home-buying restrictions in major cities like Guangzhou, Shenzhen, and Shanghai.

The relaxation of these restrictions has had a positive impact on the stock market. Investors, encouraged by the government's efforts, have been pouring money into Chinese stocks, particularly those related to the real estate sector. This surge in investment has led to a significant increase in stock prices. The CSI 300 index saw its most significant weekly gain since 2008, rising over 15% in late September 2024

While all of this activity has had a positive short-term impact, economists believe that more measures are needed to address China's weak domestic demand. The housing market is still grappling with concerns about developer solvency and the overall economic outlook. The government's efforts to address these issues will be crucial for the long-term recovery of the housing market and the broader economy.

On September 27, Jeremy Siegel, Wharton School professor of finance, joined CNBC's 'Squawk on the Street' to discuss how much of a game changer recent news from China is. He shared his insights on the potential implications of global market changes, particularly in light of discussions surrounding Japan and China.

Siegel agreed with hedge fund manager David Tepper's views but noted a divergence regarding Japan's long-term appreciation and its effects on exports and interest rates. He highlighted that, despite concerns, the recent performance of the Japanese yen and Nikkei, showing gains of 2% each, indicates that there may still be opportunities to capitalize on these markets.

He emphasized the positive developments in China, suggesting that buying into a market with a price-to-earnings ratio of around 10 can be advantageous, especially considering the current P/E ratio for China is approximately 12 to 13. He pointed out that this valuation is relatively low compared to other markets, with Brazil being one of the few markets with an even lower ratio. Siegel referenced Warren Buffett's concept of "margin of safety" when investing in low P/E markets, reinforcing his belief in the potential for gains in China despite some bearish sentiments.

When asked about the US market, Siegel indicated that it appears full at present. He praised the Fed's new trajectory and suggested that if they implement a quarter-point rate increase at each meeting, they could reach a target rate of around 3.5% by mid-2025. He argued that current inflation data supports this approach, although he expressed skepticism about reaching the Fed's dot plot target of 2.9% without a recession.

Siegel believes that while inflation remains a concern, the Fed does not need to take drastic measures such as a 50 basis point hike. Instead, he advocates for a more gradual approach to rate increases, which would help stabilize the economy without causing significant harm. He noted that if the market anticipates these adjustments, the outlook for the remainder of the year could improve.

Overall, his analysis suggests that while opportunities exist in international markets like Japan and China, investors should remain cautious about US equities due to their current valuations. His perspective encourages a balanced approach to investing in various global markets while keeping an eye on macroeconomic indicators and central bank policies.

China's recent stimulus measures have encouraged renewed investor interest in Chinese stocks. Short-term traders have been consistently purchasing stocks, and hedge funds have increased their allocations to Chinese equities. While the stimulus is positive, underlying economic challenges could affect investment strategies, including short-selling.

Methodology

To compile our list, we used the Finviz stock screener to find companies with a short interest between 10% and 25%. We then selected 10 stocks that were the most shorted but at the same time popular among elite hedge funds and that analysts were bullish on. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers. The stocks are ranked in ascending order of their short interest.

Why are we interested in 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).

A laboratory employee in a sterile environment inspecting a microscope focused on a Clostridioides difficile infection sample.

Summit Therapeutics Inc. (NASDAQ:SMMT)

Short % of Float As of September 13: 17.83%

Market Capitalization as of September 30: $15.13 billion

Number of Hedge Fund Holders: 17

Summit Therapeutics Inc. (NASDAQ:SMMT) is a biopharmaceutical oncology company focused on developing novel therapies for rare genetic diseases. Its pipeline includes potential treatments for rare neuromuscular disorders and other genetic conditions. The company's lead candidate, ivonescimab, has shown promising results in clinical trials for non-small cell lung cancer (NSCLC).

Its partnership with Akeso, a well-established Chinese biotech, significantly reduces development risks. Together they conducted two successful Phase 3 clinical trials, HARMONi-A and HARMONi-2, for ivonescimab in non-small cell lung cancer, yielding positive data. Hence Akeso's experience and expertise contribute to the advancement of ivonescimab. The company also announced a 5-year strategic collaboration with MD Anderson to accelerate ivonescimab’s development.

Currently, there are 20 ongoing clinical trials evaluating ivonescimab for various cancer types. While the current Phase 3 programs focus on non-small cell lung cancer, 7 trials are exploring its potential in other solid tumors. Early-stage clinical trials have demonstrated the efficacy of ivonescimab in treating NSCLC. The positive data from these trials provide strong evidence for the drug's potential.

The company's strong financial position allows it to allocate resources for ongoing development efforts, with a solid cash balance to support its operations. Research and development (R&D) expenses remained stable in the second quarter. However, acquired IP R&D expenses increased due to a licensing agreement amendment. Operating expenses remained consistent.

Overall, Overall, Summit Therapeutics Inc. (NASDAQ:SMMT) appears to be a promising investment opportunity. The company's strong pipeline, strategic partnerships, and positive clinical data-position it for potential future growth. However, investors should carefully evaluate the risks associated with early-stage biotech companies.

Overall SMMT ranks 2nd on our list of the best high short interest stocks to invest in. While we acknowledge the potential of SMMT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.