One industry that is expected to do well in a Barack Obama presidency is biotech. With the drop in the stock market bringing down all stocks, including the biotechs, short-squeeze opportunities may exist.

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.

Stockpickr has reviewed all the biotechnology stocks and developed a list of the Top Biotech Short-Squeeze Plays.

One biotech with a high short ratio is ViroPharma (VPHM), a Pennsylvania-based company that makes products to treat serious infectious diseases. ViroPharma's short ratio is 6.9, meaning it would take short-sellers seven days to cover their bearish positions in the stock.

Last month, ViroPharma reported that a company it is in the process of buying, Lev Pharmaceuticals, received news that U.S. regulators have approved Cinryze to prevent painful attacks that occur in patients with hereditary angiodema. ViroPharma has a reasonable P/E ratio of 11 and a very favorable low PEG ratio of 0.5.

ViroPharma is owned by Clarium Capital, a $5 billion global macro hedge fund founded by managing member Peter Thiel. Clarium was honored as the global macro fund of 2005 by two hedge fund trade magazines, MarHedge and Absolute Return. Clarium also owns HewlettPackard (HPQ), with a short ratio of 0.9; Procter & Gamble (PG), with a short ratio of 1.7; and Royal Caribbean Cruises (RCL), with a 3.9 ratio. Recently, TheStreet.com discussed Royal Caribbean's use this year of hedging for about half of the fuel it anticipates using in its ships.

Another heavily shorted biotech is OSI Pharmaceuticals (OSIP), which produces molecular targeted therapies for oncology, diabetes and obesity and has a short ratio of 6.9. The stock has a P/E of 19 and a very favorable PEG ratio of 0.78.

OSI is owned by Pequot Capital Management, an investment adviser founded in 1998 by Arthur J. Samberg. It has approximately $7.4 billion under management. As of its latest SEC 13F filing, Pequot also owned Foster Wheeler (FWLT), with a short ratio of 1, and Potash (POT), with a ratio of 0.2.

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

Posted on Nov. 20, 2008