This strategy reflects a proactive approach to capitalizing on market dynamics and identifying undervalued assets with the potential for significant upside movement. By focusing on stocks with these distinct characteristics, the firm aims to leverage market inefficiencies and position itself strategically for potential gains in the evolving market landscape.
According to Evercore ISI, heavily shorted companies like CrowdStrike and beaten-down Advanced Micro Devices might experience a significant surge if the market rebounds. The recent market sell-off has been driven by fears related to President Donald Trump's trade policies potentially causing inflation and slowing down growth, leading to stagflation.
Investors are looking to de-risk and find safer growth opportunities amidst this uncertainty. Evercore ISI senior managing director Julian Emanuel highlighted the impact of this uncertainty on both 'soft' and 'hard' data, resulting in a substantial correction in the S&P 500.
Market Sell-off Amid Trade Policy Fears
Fears related to President Donald Trump's trade policies potentially causing inflation and slowing growth have triggered a recent market sell-off, as investors aim to reduce risks and seek safer growth prospects. Evercore ISI's senior managing director, Julian Emanuel, highlighted the impact of this uncertainty on both 'soft' and 'hard' market data, resulting in a significant correction in the S&P 500.
Emanuel identified potential breakout stocks by searching for companies with high short interest and low valuations post the recent sell-off. These stocks could witness a "short squeeze" if the market shows signs of recovery. A short squeeze occurs when investors betting against a stock witness its price rising and rush to purchase shares to limit their losses, subsequently driving the stock price higher.
Potential Breakout Stocks Identified
Seeking potential breakout candidates, Emanuel focused on stocks with high short interest and low valuations post-sell-off, which could lead to a short squeeze in case of a market rebound. Emanuel termed these stocks as the market's "dislocated diamonds in the rough."
Among the highlighted stocks are CrowdStrike, currently trading at a 72% discount to its five-year average, with short interest in the 91st percentile over the past two years. The cybersecurity company faced challenges in 2025, including weak earnings guidance overshadowing its fiscal fourth-quarter results due to issues related to a global IT outage in July.
Understanding Short Squeeze Dynamics
A short squeeze scenario occurs when investors who bet against a stock witness its price rising and rush to buy shares to limit their losses, consequently driving the stock price even higher.
Furthermore, beer maker Constellation Brands has short interest in the 100th percentile, while trading at a 32% discount to its five-year average. The company has faced challenges with its struggling wine and spirits division and concerns over tariffs impacting its Mexican beer business, leading to a 17% decline in its stock price this year.
Identifying Market's "Dislocated Diamonds"
Evercore ISI identified stocks referred to as the market's "dislocated diamonds," characterized by short interest in the 90th percentile or higher over two years and a price-to-earnings ratio discount of 30% or more compared to the five-year average.
Stock Analysis: CrowdStrike and AMD
CrowdStrike, currently trading at a significant discount to its historical average, faced challenges in 2025, including weak earnings guidance overshadowing its fourth-quarter results due to global IT issues. On the other hand, AMD experienced a decline in share value this year, attributed to underwhelming earnings and waning enthusiasm for AI and tech stocks.
Advanced Micro Devices (AMD) has also experienced a decline following lackluster earnings and reduced enthusiasm for AI- and tech-related stocks this year. AMD shares are down 17% year to date, trading at over a 40% discount from its five-year average.
Constellation Brands Facing Market Challenges
Constellation Brands, a beer maker, is grappling with high short interest and a discounted stock price, impacted by concerns regarding its wine and spirits division's performance and potential tariff implications on its Mexican beer business.
According to Evercore ISI, heavily shorted companies like CrowdStrike and beaten-down Advanced Micro Devices may experience a surge if the market sees a recovery.
