By Stockpickr Staff
Posted on June 2, 2009


During economic downturns, many investors turn toward the consumer goods sector and companies that sell such things as beverages, food, liquor, cigarettes, and candy. Even during a recession, most consumers won't give up such consumer goods as food, liquor, cigarettes and candy, and in some cases, consumption actually increases.

With this in mind, we thought we'd look into possible short-squeeze opportunities in the sector.

Recently, Rev Shark said that yet again "the bears were caught flat-footed, and we end up with some short-squeeze-induced euphoria." A short squeeze occurs when short-sellers quickly buy in shares of stock to cover their positions, rapidly moving the stock price up.

The ratio for measuring short-squeeze opportunities is the short ratio, which is the number of days it would take the short sellers to cover their position based on recent average daily volume.

Stockpickr has combed through the list of consumer goods stocks and compiled a portfolio of the Top Consumer Goods Short-Squeeze Plays.

One heavily shorted consumer goods company is The Hain Celestial Group (HAIN), which has about 17.8% of the float shorted and has a short ratio of about 13, which means it would take the short sellers about 13 days to cover their positions.

Hain makes and markets natural and organic food and personal care products to natural food distributors, supermarkets, natural food stores and club stores. Some of its products include Terra chips, Celestial Seasonings tea and WestSoy soymilk. A couple of weeks ago, the company reported a slight revenue increased but adjusted earnings of 31 cents per share for the quarter, below analysts' estimates of 33 cents a share. The company currently has $27.8 million in cash, $291.3 million in total debt and negative operating cash flow.

Hain shows up in a Stockpickr portfolio called Barron's Research Reports from the second week in May. Jeffries gave the stock a buy rating and raised its target price on the stock from $16 to $20, representing 15 times 2009 earnings per share of $1.31. Jeffries did mention a couple of risks, including the worsening economic climate and rising unemployment.

Other stocks mentioned in the portfolio include DuPont Fabros Technology (DFT), which was given an outperform by Raymond James and has a short ratio of 1.9, and Wynn Resorts (WYNN), given a neutral rating by JPMorgan with a short ratio of 2.7.

Another heavily shorted stock in the consumer goods sector is cigarette maker Vector Group (VGR), which produces Liggett, Grand Prix, Eve and Pyramid brand cigarettes. The stock has a short ratio of 10.6.

The company reported that its first-quarter revenue was down 8% from the same quarter last year, and its net income for the quarter was 4 cents a share, down 78% from 21 cents a share for the same quarter last year. The company currently pays a very high yield of 11%, amounting to a totally dividend payout of $106.4 million, slightly more than its operating income of $98.2 million. It has $309 million in total debt with $226 million in cash.

Vector Group is owned by the DWS Dreman Small Cap Value Institutional Fund, a Morningstar-rated five-star fund and ranked in the top 5% of all the funds in its small-blend category for the last five years. The fund also owns Lifepoint Hospitals (LPNT), with a short ratio of 4.2; Aspen Insurance Holdings (AHL), with a 2.6 short ratio; and Mednax (MD), with a 1.5 short ratio.

For other short-squeeze ideas, check out the Top Consumer Goods Short-Squeeze Plays portfolio at Stockpickr.com.

Author has no position in stocks mentioned.