The stock market has bottomed, even if on a short-term temporary basis. The major fall in the stock market has created significant short-squeeze opportunities, especially in the homebuilder stock arena.

A short squeeze takes place when a stock's short-sellers scramble to cover their bearish positions when that stock moves sharply upward; their buying ends up pushing shares even higher. Short positions of stocks are measured by the short-squeeze ratio, which represents the number of days it would take for the short-sellers to cover their positions based on the recent daily volume of the stock.

This week, Stockpickr has come up with a list of the top homebuilder short-squeeze plays.

One residential construction stock with a high short ratio is NVR (NVR), a builder of single-family detached homes, townhouses and condos, which has a short ratio of 9.3. This high-priced stock, currently selling at around $500 per share, recently decided to cancel its $325 million offering of convertible senior notes due 2038. The stock has a P/E of 12 and a PEG of 1.89.

NVR is also owned by Traxis Partners a Greenwich, Conn.-based hedge fund managed by Barton Biggs, with over $1.5 billion in assets. Traxis also owns General Electric (GE), with a short ratio of 0.6; Deere (DE), with a short ratio of 0.8; and Schlumberger (SLB), with a ratio of 1.1.

Another homebuilder with a high short interest is Hovnanian Enterprises (HOV), with a short ratio of 6.0. Back in June, UBS upgraded the company from sell to neutral. This New Jersey-based company last reported a 36.6% drop in revenues for its third quarter. It generated a $17.20 loss per share.

Hovnanian is held by Tontine Partners, a Greenwic-based hedge fund managed by Jeffrey Gendell. It had a return of more than 100% in both 2003 and 2005. Its portfolio also includes Trinity Industries (TRN), with a 4.7 short ratio, and Navistar International (NAV), with a 1.6 ratio.

Meritage Homes (MTH) has a short ratio of 4.5. The company is a builder of single-family attached and detached homes in the Southern and Western U.S. It just won a $111 million lawsuit against a former division president. Revenues for the latest reported quarter were down 34%.

Meritage recently appeared in the Stockpickr portfolio called Rocket Stocks for the Week of Sept. 10-14. Other stocks in the portfolio were Boeing (BA), with a 1.1 short ratio, and Alcoa (AA), with a 0.8 ratio.

For more ideas, check out the Top Homebuilder Short-Squeeze Plays portfolio at Stockpickr.com.

Posted on Oct. 13, 2008