Bank stocks have been dropping substantially over the last year. In the last couple of weeks, they had a really big drop, especially money center banks, creating a short-squeeze opportunity.

A short squeeze takes place when a stock's short-sellers cover their positions quickly when good news boosts the price of the stock. This short-covering often drives the stock price even higher. The metric for measuring short-squeeze plays is the short ratio, which represents the number of days it would take a stock's short-sellers to cover their positions based on the stock's recent average daily volume.

With this in mind, here at Stockpickr we've compiled a portfolio of the Top Money Center Bank Stock Short-Squeeze Plays for July.

One of the bank stocks with the highest short ratios is The Bank Of Nova Scotia (BNS), also known as Scotiabank, with a short ratio of 12.7. The company just announced that the maximum amortization period for its mortgages will be reduced to 35 years and that a 5% minimum requirement for down payments will be required for new mortgage financing. It has operations in 50 countries and serves about 12.5 million customers. The stock has a P/E of 13, a PEG of 1.54 and a yield of 4.1%.

Scotiabank is part of the The Claymore/Sabrient Defender ETF, which looks for potentially superior risk-return profiles during periods of stock market weakness. The portfolio also includes Mobile Telesystems (MBT), with a 1.4 short ratio; AMB Property (AMB), with a 9.4 ratio; and Pepsi Bottling Group (PBG), with a 1.7 short ratio.

Another heavily shorted bank is TCF Financial (TCB), the holding company for TCF National Bank and TCF National Bank Arizona, which has a short ratio of 6.1. It just declared its latest quarterly dividend of 25 cents per share, maintaining it regular quarterly rate. The stock has a P/E of 8, and a PEG of 1.6, and it pays a yield or 7.5%.

TCF shows up in a Stockpickr portfolio called Barron's Insider Purchases 6-07-2008, which lists the largest insider purchases. Other stocks listed in the portfolio include Community Bankers Trust (BTC), with a 7.5 short ratio; Perini (PCR), with a 10.2 ratio; and Marchex (MCHX), with a 35.9 ratio.

Royal Bank of Canada (RY) is another heavily shorted bank, with a short ratio of 7.3. Its RBC Capital Markets division announced its worldwide carbon trading operations to help companies manage greenhouse gas emissions. The stock has a P/E of 12, a PEG of 1.98 and a yield of 4.5%.

Royal Bank is owned by the Gartmore Global Financial Institutional Fund, which has an objective of long-term capital growth through investments in the financial services sector. It had a return of 18.3% over the last year. It also owns Wachovia (WB), with a short ratio of 3.4; American International Group (AIG), with a 1.9 ratio; and JPMorgan Chase (JPM), with a 1.9 ratio.

For more ideas, check out the Top Money Center Bank Stock Short-Squeeze Plays portfolio.


A note from James Altucher:

Every weekend I send an email to Jim Cramer and several hedge fund managers about the most interesting portfolios posted on Stockpickr that week. Usually those portfolios not only list stocks according to a theme but also offer significant analysis as to why the stocks are cheap.

Here are some examples:

Stocks related to drilling the Marcellus Shale

MLPS with yields above 7%

Microcaps trading for less than tangible book

Stocks that do well after Hurricanes

Here's the challenge: Build a portfolio at Stockpickr.com with great analysis, and send me the link. Each great portfolio (with analysis) will get posted on TheStreet.com with your byline (as a "Stockpickr Guest Columnist") and will be included in my email I send to Jim and the other
hedge fund managers on my list.



Published on July 31, 2008