Lucid Group and 21 Other Stocks Set to Lag the Market in 2026

A Lucid Air electric vehicle . (Kent Nishimura/Bloomberg)

There’s now a better way of identifying stocks that are likely to underperform the market.

A decade ago, three finance professors discovered that certain stocks tend to lag the market: Those that trade at artificially high prices because of the difficulty investors encounter in shorting the shares.

Shorting a stock entails borrowing someone else’s shares, selling them, and then ultimately buying them back and returning them. The short seller hopes to buy the shares back at a lower price than the initial sale, creating a profit.

The professors’ decade-old research already did an impressive job. Consider the 19 stocks listed in a June 2023 Barron’s column that employed the professors’ algorithm to identify hard-to-short stocks. They proceeded to lose 9.7% over the subsequent 12 months, in contrast to a 29.5% gain for the S&P 500 .

An earlier Barron’s column, in December 2022, that identified two dozen other hard-to-short stocks had similar results. Over the 12 months after its publication, these two dozen stocks lagged behind the S&P 500 by 26 percentage points.

In a just-released new study, the three professors—Kent Daniel of Columbia Business School, Alexander Klos of Germany’s Kiel University, and Simon Rottke of the University of Amsterdam—found what they believe is an even better approach. Instead of focusing on stocks for which relatively few shares are available to borrow and sell short—the approach they used before—their new study focuses on the fee that short sellers must pay to borrow shares that they can then sell short. This fee is a more direct measure of how difficult it is to sell a stock short, Daniel, who was formerly Goldman Sachs’ co-chief investment officer, told Barron’s in an interview.

For most stocks this fee is an annual 0.25%. That is small enough that short sellers are able to operate with little hindrance, which in turn helps ensure that these stocks won’t be systematically overpriced. But in a not insignificant number of cases, the fee to borrow certain stocks is much higher—in some cases over 100% annualized.

A fee that high scares away most of those who might otherwise consider selling such stocks short, according to Daniel, which is why such stocks can become significantly overvalued—and, in turn, why they proceed to perform so poorly. To show just how poorly, the researchers constructed a hypothetical portfolio that each month between 2010 and earlier this year owned all stocks that, at the end of the prior month, had borrow costs greater than 50%.

From January 2010 through June 2025, this portfolio’s performance relative to the broad market (its “alpha”) was minus 81.4% annualized. Daniel said he is unaware of any other stock selection approach that produces an alpha that is that negative.

Yet short sellers are unable to profit by shorting these stocks. That’s because of their sky-high borrow costs, which more or less completely offset the theoretical gain from shorting them. Net of those costs, a short seller would have merely broken even between 2010 and mid-2025—an alpha of zero.

Investors’ best course of action with stocks with sky-high borrow costs, therefore, is to simply avoid them. And if you are unlucky enough to already own one of them, you should sell it immediately.

Not all hope is lost, however, for short sellers hoping to exploit this new research. The key is to focus on stocks with borrow costs that are only moderately high—in the 10% to 50% annualized range. Even after paying these costs, according to the professors, a portfolio that sold them short would have produced an annualized gain of 10.9%.

With this thought in mind, here are 22 stocks that are part of the broad-market Russell 3000 index whose annualized cost to borrow currently stands between 10% and 50%. Exercise care if you’re inclined to sell them short. Trying to borrow such companies’ shares could boost their borrow costs, and the very act of shorting those borrowed shares could cause their prices to fall. Both could significantly reduce your potential profit from selling them short.

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

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