Stock Quotes in this Article: DGX, LBTYA, MTB, RMD, SYY

BALTIMORE (Stockpickr) -- Short sellers are popping champagne after the stumble that stocks have taken in the last week.

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It's not that the 3% drop from last Wednesday was particularly earth-shattering, mind you; all told, that's a pretty tepid move. Instead, it's the key level that major indices fell through that's cause for concern about this rally's staying power. But short sellers' celebrations could be short-lived in a handful of hated stocks.

That's because, ironically, it's the most hated stocks that stand the biggest shot of a structural pop called a short squeeze. And statistically speaking, the data shows that big, heavily-shorted names are the best to bet on, not against.

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Going back over the last decade, buying heavily shorted large- and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year. That's some material outperformance during a decade when decent returns were very hard to come by.

When I say that investors "hate" a stock, I'm talking about its short interest. A stock with a high level of shorting indicates that there are a lot of people willing to bet on a decline in its share price -- and not many willing to buy. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

It's worth noting, though, that market cap matters a lot. Short sellers tend to be right about smaller names, with micro-caps delivering negative returns when the same method was used.

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Today, we'll replicate the most lucrative side of this strategy with a look at five big-name stocks that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in 2013.

Liberty Global

Cable and satellite network owner Liberty Global (LBTYA) is the poster child for a growth-by-acquisition strategy. That at least accounts for part of the reason why the firm has sported such a hefty short interest ratio in 2013. As merger arbitrage traders pile into positions against Liberty, they've ratcheted up the firm's short interest to 15.68.

If nothing else, it's a reminder that it doesn't matter why a stock is heavily shorted, only that it is. Right now, it would take more than three weeks of buying pressure at current volume levels for short sellers to exit their positions in Liberty.

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Liberty owns cable networks, satellite TV operators and phone and Internet providers in more than a dozen countries in Europe and Latin America. Those are high-moat businesses -- because Liberty owns the infrastructure that powers those utilities, the barriers to entry are extremely high for any potential rivals. Liberty's global acquisition spree has yielded a firm that carries considerable debt that's offset by considerable cash flow. That leverage in an environment where rates have slowly been rising doesn't exactly help with LBTYA's short interest. As long as management starts to pare down its appetite, Liberty's financial health isn't at risk.

Meanwhile, Liberty's experience operating cable networks in scores of countries gives it unique positioning -- it's able to modernize business models in developing countries and generate substantial cash from its more mature networks. As the firm's networks continue to growth their revenues per subscriber, Liberty's share price should continue growing too.

Sysco

Sysco (SYY) has been putting food on your table for years -- even if you didn't know it. If you've eaten out in the last month, there's a good chance the food, napkins or silverware came off of a Sysco truck. The firm is the biggest name in North American food distribution, providing everything from ingredients to par-cooked entrees to services such as menu analysis to 400,000 restaurants, hotels and institutional dining facilities.

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While celebrity chefs fix restaurants on TV, Sysco is doing the same for its own customers on a much bigger scale. Service offerings such as business reviews, menu analysis and safety training all foster stronger relationships with SYY -- and act as an attractive revenue stream that isn't squeezed by rising commodity prices. Still, Sysco's bread and butter (so to speak) is food. From a food service standpoint, it makes sense to turn to a supplier like Sysco; after all, the firm can take many of the costs and food safety concerns off of a restaurateur's plate, helping profitability down the line as well.

Like Liberty, Sysco's approach to growth over the years has been through acquisitions. While that's left the firm with some balance sheet leverage, the firm's debt to capital ratio weighs in at 0.4 -- hardly a concern right now, since operating income covers interest roughly 17 times over. Still, shorts are piled high in this stock, ramping its days short to 10.66.

That makes Sysco a short squeeze candidate this summer.

M&T Bank

For the last several years, M&T Bank (MTB) has been a gleaming example of success in the banking business. The firm was one of the few "big" banks to remain profitable throughout the financial crisis, it's been growing its presence (and assets) at a fast pace in the years since. That hasn't spared this bank from shorting -- MTB's short interest ratio weighs in at a hefty 17.73.

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Like a lot of other regional banking names, M&T succeeded where a lot of the "too-big-to-fail" banks messed up: It actually focused on staying a retail and commercial bank in the mid-2000s, when its larger peers were more focused on complex transactions. Because M&T bought loans without intending on flipping them right away, it held up higher underwriting standards than the big banks did.

That's not to say that M&T is small. At almost $83 billion in assets, it's one of the larger financial institutions in the country. And while it's not as large as the "big four" banks, it also lacks their black hole balance sheets.

A 2.63% dividend yield puts it on the high end for a pure-play financial firm -- and don't forget, dividends are like kryptonite to short sellers. There's no question that the prolonged low-rate environment we're in right now adds some extra income challenges to MTB, but this bank's financial fortitude gives it a lot of options right now.

Quest Diagnostics

Investors hate medical testing company Quest Diagnostics (DGX). With a short ratio of 12.26, investors hate this stock so much, in fact, that it would take two-and-a-half weeks of buying pressure at current volume levels for shorts to cover their bets. That makes Quest a large-cap short squeeze candidate this week.

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Quest provides clinical testing at a network of 2,000 locations across the country. If you've taken a blood test or a drug screening in the last few years, there's a good chance it was at one of Quest's facilities. There's a lot to like about this company right now: It's recession resistant (physicians' blood work orders don't ebb and flow with the economy), margins are thick, and an aging population should boost demand for DGX's services. That's particularly true if Obamacare increases the number of insured patients in the U.S.

Quest has been adding some new tests to its menu in recent years. The addition of more complex products like genetic and pathological tests require more advanced equipment and additional technicians, but they also provides a huge shot in the arm for net margins. In the meantime, renegotiated managed care contracts should help correct the falling margins in Quest's older, standard tests.

ResMed

Another hated health care name is RedMed (RMD). The firm manufactures airflow generators and masks for sleep apnea patients, a business that's been growing briskly as diagnoses of sleep breathing disorders continue to increase. One major catalyst for that has been obesity: As worldwide obesity rates increase, instances of obesity-related disorders (such as sleep apnea) are increasing too.

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ResMed has made a big transition in recent years from playing catch-up with Philips Electronics' sleep apnea unit to innovating its way to a more front-and-center role in the industry. That's earned RMD an economic moat at this point, even if it's not a big one just yet.

Short interest in RMD has been insane in the last month. At last count, it's gotten up to 30.37. In other words, it would take short sellers a month and a half to exit their positions at current volume levels. That makes RMD the biggest short squeeze candidate on this list.

To see these short squeezes in action, check out this week's Short Squeezes portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji