By Jonas Elmerraji
Posted on Nov. 25, 2009

With Thanksgiving fast approaching, retailers have one thing on their collective minds: Black Friday. After all, the day, which got its name by historically propelling retailers into profitability -- otherwise known as “in the black” -- for the year, continues to be one of the most significant for retailers and the manufacturers that supply them.

And although prices will be slashed deep this year, most analysts expect a buying frenzy to well surpass last year’s Black Friday disappointments. So with retail’s biggest day in mind, it’s time to talk turkey about the phenomenon that could cause some of the industry’s biggest stocks to surge going into next week.

I’m talking, of course, about a short squeeze.

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors. As more and more of the short investors buy shares to cover their positions, share prices skyrocket. Almost anything can trigger a short squeeze, including trumping earnings expectations, winning a lawsuit, unveiling a new product and even announcing a management change.

One of the best indicators of just how high a short-squeezed stock could go is the short-interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of 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.

Each week, Stockpickr creates a portfolio of stocks this week with high short interest ratios and the catalysts to trigger a squeeze. Here’s a look at this week’s potential plays.





First up on this week’s list is retail bellwether Sears Holdings (SHLD), which owns and operates nearly 4,000 Sears and Kmart stores in the U.S. and Canada. Sears made our short-squeeze list earlier this month when we were looking for late earnings plays, and it rallied nearly 14% in the week that followed. Now, with Black Friday just days away, this stock has made it back on our radar.



The company has been working hard to integrate some of the exclusive brands it owns with one of its latest additions, Kmart. That move has serious implications for competitors because it means that brands like Kenmore, Lands’ End,and Craftsman will get exposed to a completely different niche.

Sears isn’t without its detractors, however. The company has struggled compared with its peers in the current economic environment, largely because Sears’ brand positioning focused so strongly on home goods, an area that served the company well during more-prosperous times. Those factors have helped push the stock’s short ratio to 10.45. A strong day on Black Friday could be another step toward showing Wall Street that the company is able to adapt to new macroeconomic environments.

One fund that’s surely hoping for a good day for Sears is the Fairholme Fund (FAIRX), which owns more than 10% of Sears’ outstanding shares. That $821 million stake turns out to be a pretty significant vote of confidence in the retailer. Fairholme also owns large stakes in Pfizer (PFE), with a short ratio of 5.8, and Boeing (BA), with a short ratio of 3.8.

McCormick (MKC) is another company that stands to gain in a big way from the Thanksgiving holiday, though not necessarily on Black Friday. The spice and seasoning maker certainly hopes to see its products in as many kitchens as possible tomorrow as families prep one of the most important meals of the year.



With a deep competitive advantage in the spice and seasonings market, McCormick's product positioning should serve the company well as it helps its customers serve up dinner.

The company's relatively recent acquisition of Lawry’s did a good job of deepening that economic moat. And now, with a short ratio of 12.73, McCormick should be ready to show shareholders that it’s not going anywhere anytime soon.

Apparel manufacturers have been some of the hardest-hit companies during the global economic downturn as consumers tightened up discretionary spending and braced for tougher times. Gildan Activewear (GIL) was certainly among that crowd as its share price slid almost 70% in 2008.



But with changing economic conditions and a Black Friday that could exceed analyst expectations, Gildan looks well-positioned to fare well this quarter, despite its short ratio of 11.96. The company, which has historically focused on the wholesale activewear market, has begun shifting its focus to the higher-margin retail channel with some solid results.
One of Gildan’s biggest owners is the Royce Value Plus Service Fund (RYVPX), a four-star Morningstar-rated fund managed by Chip Skinner and W. Whitney George. In addition to its stake in Gildan, the fund holds positions in retailers Men’s Wearhouse (MW) and Coach (COH).

For the rest of this week’s short-squeeze opportunities, including lululemon (LULU) and Luxottica Group (LUX), check out the Black Friday Short Squeezes portfolio at Stockpickr.

And to find short-squeeze plays of your own, be sure to check out the Stockpickr Answers community for insights and investment ideas.

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