Barron's advised avoiding Lucid shares and 21 other companies in 2026. What's wrong with that?

Barron's has compiled a list of 22 stocks that investors should avoid in 2026. These securities are likely to underperform the market as a whole, and betting on their decline through short positions is also unlikely to be profitable. The publication used a methodology developed by three researchers from leading universities in the US and Europe, which has been proven effective several times in recent years.

Three professors—Kent Daniel from Columbia University's Business School, Alexander Klos from Kiel University, and Simon Rotteke from the University of Amsterdam— updated their method for identifying what they believe to be an effective way to identify stocks that are likely to underperform the market. About ten years ago, they discovered that some stocks are traded at artificially inflated prices because it is difficult for investors to short them — to open short positions in anticipation of a price decline. In this case, the investor borrows securities from a broker, sells them at a higher price, buys them back at a lower price, and returns them to the broker, keeping the difference in price for themselves.

Now Daniel, Klos, and Rotteke have discovered another sign of potentially problematic stocks—the high fees that short sellers must pay to borrow securities, writes Barron's. This is a more direct indicator of how difficult it is to short a stock, the researchers believe: for most stocks, the fee is 0.25% per annum, but in a significant number of cases, the fee is much higher — in some cases, 100% per annum. Such high fees deter short sellers, which means that the stocks may be overvalued, the researchers suggest.

But hope remains for short sellers in stocks with moderately high borrowing costs—in the range of 10% to 50% per annum, writes Barron's. Using this methodology, it compiled a list of 22 stocks in the Russell 3000 Index whose current annual borrowing costs meet this criterion.

Companies are sorted by market capitalization, from largest to smallest. The annual borrowing cost is indicated in parentheses.

— Media holding company that owns Formula 1 — Liberty Live Group (~18%)

— Premium electric vehicle manufacturer — Lucid Group ( ~15%)

— Online video platform and digital media operator — Rumble ( ~15%)

— Electric motorcycle manufacturer — LiveWire Group (~20%)

— Visual media content and photo bank provider — Getty Images Holdings (22%)

— Oil and gas company engaged in hydrocarbon production — HighPeak Energy ( ~11%)

— Medical device manufacturer — CapsoVision (~26%)

— Digital technology and IT platform developer — Chaince Digital Holdings (~11%)

— Operator of a network of medical and aesthetic clinics — SBC Medical Group Holdings (~21%)

— Biotech company that makes drugs for treating neurological diseases — Anavex Life Sciences (~12%)

— Biotech company, developer of cancer drugs — Sellas Life Sciences Group (~13%)

— Agribusiness and food processing company — Forafric Global (12%)

— Private aviation and business transportation operator — flyExclusive ( 45%)

— Clean energy and energy technology company — NextNRG ( ~20%)

— Electric vehicle and automotive technology manufacturer — Faraday Future Intelligent Electric (~11%)

— AirSculpt Technologies, a provider of aesthetic medicine services (borrowing cost ~12%)

— Artificial intelligence and automation solutions developer — Arrive AI, (~30%)

— Manufacturer of regenerative medicine solutions — Avita Medical (~12%)

— Provider of staffing and personnel outsourcing services — Atlantic International (~37%)

— Logistics and warehouse real estate operator — Logistic Properties of the Americas ( ~36%)

— Producer of alternative fuels and sustainable energy solutions — XCF Global (~14%)

— Developer of VR and AR-based educational technologies — zSpace (~22%)

To illustrate the scale of the effect they discovered, the researchers compiled a hypothetical portfolio that included stocks for which the borrowing cost at the end of the previous month exceeded 50% per annum on a monthly basis from 2010 to mid-2025. Between January 2010 and June 2025, the return on this portfolio relative to the broader market averaged minus 81.4% per annum. According to Daniel, he is not aware of any other stock selection method that demonstrates such a significant difference.

Although the indicator points to overvalued stocks, short sellers are still unlikely to be able to profit from selling such securities, according to Barrons. The extremely high cost of borrowing shares virtually eliminates any theoretical profit from shorting. Therefore, the most rational strategy for ordinary investors with regard to such stocks is simply to avoid them, Barron's argues. And if such securities are already in the portfolio, it is better to sell them as soon as possible, the publication added.

The application of Daniel, Kloss, and Rotte's previous methodology in 2022 and 2023 demonstrated its high effectiveness. For example, a Barron's column published in December 2022 highlighted about two dozen "short-resistant" stocks that underperformed the S&P 500 by 26 percentage points over the next 12 months.

The 19 stocks mentioned in Barron's column in June 2023 and selected using this algorithm fell 9.7% in price over the following 12 months. By comparison, the S&P 500 index rose 29.5% over the same period.

This article was AI-translated and verified by a human editor