By Stockpickr Staff
Posted on April 9, 2009

Jim Cramer has been talking about the upside potential of Citigroup (C). He thinks that the change in mark-to-market might set up the short-squeeze opportunity of a lifetime in the stock.

A short squeeze takes place when short-sellers scramble to cover their bearish positions on optimism or any positive catalyst, driving the price of stocks up sharply. The metric for measuring short-squeeze opportunities is the short ratio, which is the number of days it would take the short-sellers to cover their positions based on recent average daily volume.

Citigroup isn’t the only stock that has short-covering upside potential. With this in mind, Stockpickr has compiled a portfolio of the top S&P 500 short-squeeze plays.

One potential short-squeeze opportunity is Harte-Hanks (HHS), a direct marketing services company with a short ratio of 20.1, which means that it would take about 20 days for the short-sellers to cover their positions. Last month, Harte-Hanks announced that it had completed the expansion of its Ci Technology Database to 10,000 Chinese business locations in the Asia-Pacific region. The company's earnings announcement is scheduled for May 9. The stock has a price to earnings ratio of 6.5 and a yield of 4.6%.

Harte-Hanks shows up in the Stockpickr portfolio Barron's Insider Purchases for Feb. 21 because its CEO recently bought 100,000 shares worth of stock, amounting to $610,000. Other stocks on this insider buyer list include First Bancorp (FBP), which has a short ratio of 13.6 and whose CFO, general counsel, five directors and two officers bought 120,410 shares. Seagate Technology (STX) is also in this portfolio, with a short ratio of 1.7. Its CEO bought 500,000 shares.

Another heavily shorted S&P 500 company is NL Industries (NL), with a short ratio of 19.5. NL, based in Texas, manufactures a wide variety of products, from locks to ergonomic products to marine instruments to titanium dioxide pigments. Last month, the company reported that net revenue decreased 12% in the fourth quarter of 2008 vs. the same quarter in 2007, primarily due to a reduction in customer orders. Yet quarterly earnings were up 260%. The company has $43 million in debt with $22 million in cash. Its healthy dividend of 4.6% is more than covered by its net income of $33 million.

NL is owned by the Vanguard Total Stock Market Index Fund, which has a Morningstar rating of three stars and is run by Gerard O'Reilly. It's ranked in the top 35% for the last five years of all the funds in its category of large blend funds. Other stocks held by Vanguard include General Electric (GE), with a short ratio of 0.5; Citigroup, with a short ratio of 1.5; and International Business Machines (IBM), with a 1.4 short ratio.

For more ideas, check out Top S&P 500 Short-Squeeze Plays at Stockpickr.com.

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