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4 Heavily Shorted Stocks That Could Get Squeezed Higher on Earnings - views
MILWAUKEE (Stockpickr) -- As a day trader, I like to look for stocks I think will be volatile, and during earnings season, there are tons of them. In particular, I seek out the big profits that can come from trading a stock during a short squeeze.
Short-sellers look to profit from a stock on its way down. But if that stock reports a strong quarter or provides better-than-expected future guidance, a short squeeze can occur. The short-sellers scrambling to cover their positions can push the stock up even further.
Just remember, being in a stock before an earnings report is very risky. Often a stock is being shorted for a reason. A company could also report better-than-expected results, but if the markets don’t like what they hear, the stock will still go down.
With all this in mind, here are four heavily shorted stocks reporting earnings this week that could experience a short squeeze.
Wall Street analysts on average are looking for Fusion-io (FIO), which is set to report earnings after the close Wednesday, to report a loss of 7 cents per share on revenue of $80.48 million.
As of recently, the short interest in Fusion-io is 33.45% of the float. With a tradable float of 86.11 million shares, this means 28.80 million shares are short by the bears. A surprise profit or good guidance could trigger a short squeeze in FIO.
Cliffs Natural Resources
Another stock with earnings short-squeeze potential is Cliffs Natural Resources (CLF), which is set to report earnings after the close Wednesday. Wall Street analysts on average are looking for 32 cents per share on revenue of $1.19 billion.
The short interest in Cliffs Natural Resources is 25.80% of the float. With a tradable float of 141.65 million shares, this means 36.50 million shares are currently short.
CLF has dropped from near $40 at the beginning of the year to a recent $17.89. I find it interesting to note that CLF has not beaten analyst estimates the previous four quarters. While the odds of a beat are not in its favor, it would certainly be surprising to Wall Street.
Another stock with earnings short-squeeze potential is Coinstar (CSTR), which is set to report earnings after the close Thursday. Wall Street analysts on average are looking for 86 cents per share on revenue of $579.41 million.
The short interest in Coinstar is a whopping 51% of the float. With a tradable float of 25.9 million, this means 13.20 million shares are short. Certainly a surprise beat or better-than-expected guidance can lift this stock higher.
What interests me, however, is the earnings call scheduled to start Thursday at 5 p.m. Eastern time. Famous for their Redbox kiosks, Coinstar, by teaming up with Verizon (VZ), recently entered the streaming video market in March. Certainly there will be discussion on the number of subscribers and future of their new streaming video during the conference call. This alone can spark interest in the stock regardless of earnings in my opinion.
ITT Educational Services
My final idea for an earnings short squeeze is ITT Educational Services (ESI), which is set to report earnings before the market opens on Thursday. Wall Street analysts on average are looking for earnings of $1.26 per share on revenue of $277 million.
The short interest in ITT Educational Services Inc. is 59.50% of the float. With a tradable float of 14.6 million, this means 8.7 million shares are short.
This will be an interesting stock to watch in my opinion. ITT Educational Services provides postsecondary degree programs in the U.S. Over the past two years, total student enrollment has been on a steady decline, as has year-ending revenue. With a conference call scheduled to occur at 11 a.m. on Thursday, there may be volatility intraday. Even if this stock drops pre-market on the earnings report, the conference call could in my opinion ignite the fire needed for a short squeeze.
-- Written by Andrew Anger in Milwaukee.
Andrew Anger, based out of Milwaukee, is a proprietary trader, focused on technical analysis in small- to large-cap stocks. He graduated in 2012 from Saint Mary's University of Minnesota with degrees in marketing and entrepreneurship. You can follow him on twitter @angertrader.