We recently published a list of 15 Worst 52-Week Low Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Chegg, Inc. (NYSE:CHGG) stands against the other worst 52-week low stocks to buy now according to short sellers.
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.
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.
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).
A student, their laptop open, using the companies learning platform.
Chegg, Inc. (NYSE:CHGG)
52 Week Range: $1.72 – $11.48
Current Share Price: $1.84
Short % of Shares Outstanding:13.46%
Number of Hedge Funds holding stakes as of Q2 2024: 24
Chegg, Inc. (NYSE:CHGG) is a company that develops learning platforms that help people build essential life and job skills. Subscription services include Chegg Study, which offers personalized step-by-step learning support from A.I., computational engines, and subject matter experts, as well as Tinger Gold
Chegg, Inc. (NYSE:CHGG) was one of the companies that benefited from the COVID-19 pandemic, which forced most people to stay home and resort to online learning services. With normalcy returning and students returning to classes, its services are no longer in high demand, as was the case at the height of the pandemic.
Chegg, Inc. (NYSE:CHGG)’s core business has been under pressure, with the subscriber count of its services dropping to 4.4 million in the second quarter. The decline is attributed to industry pressure and competitive dynamics. Given that most weaknesses appear secular, they might persist as Chegg struggles to make substantial investments in product enhancements due to margin discipline.
The company’s revenue has dropped in nine consecutive quarters, underlying weakness in the core business and weak demand for its services. Its revenue in the second quarter was down by 11% to $163.1 million as subscription revenues dropped 11% to $146.8 million. Consequently, the company ended up posting a net loss of 4616.9 million
Management issuing a subdued outlook for the third quarter affirms why Chegg, Inc. (NYSE:CHGG) could be one of the worst 52-week low stocks to buy now, according to short sellers, given the lack of catalysts to push the stock up after the recent implosion to 52-week lows. Uncertainty over the company’s long-term prospects is why short interest in the stock remains at a high of 13.46%.
According to Insider Monkey’s second-quarter database, 24 hedge funds were bullish on Chegg, Inc. (NYSE:CHGG), the same as in the prior quarter. D E Shaw is a prominent stakeholder of the company, with 4.8 million shares worth $65.11 million.
Overall CHGG ranks 6th on our list of worst 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of CHGG as an investment, our conviction lies in the belief that some 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 CHGG, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.