WINDERMERE, Fla. (Stockpickr) -- Legendary investor Warren Buffett has once again jumped in to potentially save Wall Street from another banking crisis.

Buffett’s Berkshire Hathaway (BRK.A
has announced today that they will invest $5 billion in Bank of America (BAC) to help the bank deal with losses related to subprime mortgages. This move is seen many market players as a vote of confidence in the battered banking giant. It’s also similar to what Buffett did with Goldman Sachs Group (GS) back in September 2008 during the credit crisis when he took a $5 billion stake in the investment bank. Keep in mind that after Buffett stepped into Goldman, the stock fell 58%.

Berkshire has agreed to buy 50,000 preferred shares that will pay a 6% annual dividend. Bank of America has the option to buy back the shares at any time for a 5% premium. Bank of America shares were initially up over 20% as the stock printed a daily high this morning at $8.80 a share. Since that opening pop, the stock has now pulled back to below $8 a share.

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    This major move by Buffett could be a signal that value investors are finally starting to see big opportunity in the U.S. banking sector. It could also easily start a big trend change in investor sentiment towards the battered banking stocks from bearish to bullish. If that trend change does indeed occur, then it’s time for traders to start hunting the beaten up banking sector for heavily shorted bank stocks.

    Heavily shorted bank stocks could see large spikes higher if the value players jump into the sector in the coming days or weeks because of Buffett’s move. All the market has to do is perceive that Buffett’s BAC investment is a bottom for the bank stocks. Then the bears that’re heavily short the sector will start to cover their positions and buy back some of the most beaten down bank names.

    Here’s a look at some heavily shorted bank stocks that could be ripe for large moves higher soon.

    Wintrust Financial

    One heavily shorted bank stock that could get squeezed in the near future is Wintrust Financial (WTFC). This company engages in the business of providing traditional community banking services, primarily in the Chicago metropolitan area and southeastern Wisconsin, and operates other financing businesses on a national basis through several non-bank subsidiaries. The bears have been in control of this stock so far in 2011 with shares down by around 10%.

    This company has a market cap of $1.03 billion and an enterprise value of $1.65 billion. This stock trades at a reasonable valuation with its trailing price-to-earnings of 28 and its forward price-to-earnings of 12. Wintrust’s estimated growth rate is 20% this year and 39.6% next year.

    The current short interest as a percentage of the float for Wintrust is a rather large 17.2%. This means that out of the 34.11 million shares in the tradable float, 5.9 million are currently sold short by the bears. It’s worth mention that the bears have been increasing their bets from the last reporting period by 5.5%, or by about 308,000 shares. At an average daily volume rate of 469,186 shares, it would take around 13 days for the bears to cover all of their short bets.

    If you want to play this stock for a short squeeze, I would be a buyer once it crosses above its 50-day ($31.69) and 200-day ($32.64) moving averages on big volume. Look for volume that’s close to or greater than its three-month average action of 322,000 shares. I would add aggressively to this trade if you see WTFC then trade above $35 a share. Target a run back towards $37 a share. I would stop out of this trade if WTFC fails to stay above its 50-day after it crosses over it.

    Wintrust shows up on the Stockpickr portfolio, 10 Banks With Solid Revenue and is mentioned in Philip Van Doorn's article on TheStreet.

    Cascade Bancorp

    One under-$10 name in the banking complex that’s heavily shorted is Cascade Bancorp (CACB). This bank offers full-service community banking through 32 branches in Central Oregon, Southern Oregon, Portland/Salem Oregon and Boise/Treasure Valley Idaho. The bank offers a range of commercial and retail banking services to its customers. The bears haven’t gained much ground against this stock so far in 2011 since shares are actually up over 3.4%.

    Cascade has a market cap of $411 million and an enterprise value of $340 million. This stock trades at a cheap valuation, since its trailing price-to-earnings is 6 and their estimated growth rate this year its 108%. I would also like to point out that their estimated growth rate for next year is for -91%, so that valuation could change rapidly.

    The company recently reported a break even second-quarter due to a $2 million tax credit. Cascades earned $2 million or 4 cents per share in the second-quarter versus a loss of $336,000, or 12 cents per share in the same quarter last year. In January, Cascade raised $177 million in fresh capital to help provide the bank with some added liquidity.

    The current short interest as a percentage of the float for Cascade is a notable 7.8%. This means that out of the 12.68 million shares in the tradable float, 471,281 million are currently sold short by the bears. At an average daily volume rate of just 23,445 shares, it would take 20 days for the bears to cover all of their short bets.

    If you want to buy this stock for a short squeeze, then I would look to get long once it trades back above its 50-day moving average of $9.19 a share on big volume. Look for volume that’s greater than or close to its three-month average action of 40,000 shares. I would add heavily to this trade once it takes out $10.80 a share with solid volume and target a run back towards $12.50 a share. Bail on this trade if CACB can’t manage to hold above the 50-day after it crosses over it.

    CVB Financial

    Another heavily shorted name in the banking complex is CVB Financial (CVBF). This bank provides various retail banking and financial services to small to mid-sized businesses, high net-worth individuals, and professionals in the U.S. This stock hasn’t done much so far this year with shares off by around 6%.

    This company has a market cap of $862 million and an enterprise value of $1.57 billion. This stock is trading at very cheap valuation with a trailing price-to-earnings of 13 and a forward price-to-earnings of 10. Their estimated growth rate for this year is 20.3% and for next year its 9.9%. This is a profitable bank that currently has a dividend yield of 4.2%.

    The current short interest as a percentage of the float for CVB Financial stands at a 15.2%. This means that out of the 89.36 million shares in the tradable float, 13.6 million are currently sold short by the bears. At an average daily volume rate of 1.02 million shares, it would take around 13 days for the bears to cover all of their short bets.

    This stock has been beaten down big in the last few months after shares hit a high in late July of $10 a share and fell to a recent low of $7.64. Since that beat down, the stock has formed a double bottom at around $7.60 a share that has held for most of August.

    If you want to play this for a short squeeze, then I would buy this stock once it trades above some near-term overhead resistance at $8.43 a share on big volume. Look for volume that’s close to or well above its three-month average volume of 685,000 shares. I would add to this trade once it moves above its 50-day moving average of $8.93 and target a run over $10 a share if a short squeeze kicks off. Bail on this trade if it moves back below $8.43 by a few percentage points after it crosses it.

    S&T Bancorp

    Another bank name the bears are betting heavily against is S&T Bancorp (STBA). This bank provides community banking services in Pennsylvania S&T Bancorp operates a network of 51 offices located in Allegheny, Armstrong, Blair, Butler, Clarion, Clearfield, Indiana, Jefferson, and Westmoreland counties of Pennsylvania. The bears have been winning the battle in this financial player with shares off over 24% so far in 2011.

    S&T Bancorp has a market cap of $487 million and an enterprise value of $474 million. This stock trades at a very cheap valuation, since its trailing price-to-earnings is 12 and its forward price-to-earnings is 10. Their estimate growth rate for this year is -7.6% and for next year its 21.8%. S&T Bancorp currently has a dividend yield of 3.6%.

    The current short interest as a percentage of the float for S&T Bancorp is worth mentioning at 10.2%. This means that out of the 26.39 million shares in the tradable float, 2.7 million are currently sold short by the bears. At an average daily volume rate of 159,729 shares, it would take 17 days for the bears to cover all of their short bets. It’s worth pointing out that the bears have been increasing their bets from the last reporting period by 5.5%, or by about 141,000 shares.

    The way I would trade a short squeeze in STBA is to buy this stock on any weakness and look for a breakout above some major near-term overhead resistance at around $19.30 a share. If you buy this on weakness, make sure it’s above the 50-day moving average of $17.64 before you pull the trigger. You could also wait for the breakout over $19.30 before you buy. Look for a strong volume move over $19.30 that triggers volume that’s close to or over 105,000 shares, which is three-month average action on this stock. Target a short covering rally back towards $21 to $23 a share if a big short squeeze does materialize.

    United Bankshares

    One final name in the banking sector where the bears have lots of short bets on is United Bankshares (UBSI). This company, through its subsidiaries, provides commercial and retail banking services and products in the U.S. The bears have whacked this stock so far this year with shares off by around 27%.

    United Bankshares has a market cap of $1.06 billion and an enterprise value of $1.2 billion. The stock trades at a reasonable valuation, since its trailing price-to-earnings is 12 and its forward price-to-earnings is 11. Their estimated growth rate for next year is 14.1%. This stock has a hefty dividend yield of 5.7%. Stifel Nicolaus recently upgraded this stock from hold to buy and changed their price target to $22 a share.

    The current short interest as a percentage of the float for United Bankshares is a rather large 15.4%. This means that out of the 43.36 million shares in the tradable float, 6.3 million are currently sold short by the bears. It’s worth pointing out that the bears have been increasing their short bets from the last reporting period by10.3%, or by about 596,000 shares. At an average daily volume rate of 349,259 shares, it would take around 18 days for the bears to cover all of their short bets.

    If you want to play UBSI for a short squeeze trade, then buy this stock once it moves above its 50-day moving average of $23.19 with strong volume. Look for volume that’s close to or greater than its three-month average action of 243,000 shares. I would target a short covering rally that could take UBSI back towards its 200-day moving average of $25.79 or possible higher. Bail out of this trade if the stock trades back below its 50-day by a few percentage points after it crosses above it.

    To see more heavily shorted bank stocks like Dearborn Bancorp (DEAR), Green Bankshares (GRNB) and BankAtlantic Bancorp (BBX), check out the Heavily Shorted Bank Stocks portfolio on Stockpickr.

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    -- Written by Roberto Pedone in Winderemere, Fla.
    At the time of publication, author had no positions in stocks mentioned.
    Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.