One industry that has been heavily beaten down is the automobile manufacturers. Maybe there is a short-squeeze opportunity here.

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.

At Stockpickr, we've compiled a portfolio of the Top Auto Manufacturer Short-Squeeze Plays.

A carmaker with one of the highest short ratios is Ford (F), with a short ratio of 6.4. That means that it would take roughly six and a half days for the short-sellers to cover their positions, based on recent daily volume. Ford reported that its July U. S. auto sales dropped 15% to around 161,000. In addition, Fitch Ratings downgraded the company and its credit affiliate to B- from B. Is all the bad news out on this company? Latest earnings reported were negative $6.27 per share.

Ford is owned by Polygon Investment Partners, a London- and New York-based investment company managed by Reade Griffith. The fund's primary strategies are event-driven arbitrage, convertible arbitrage and capital structure/distressed arbitrage. Polygon also owns Halliburton (HAL), with a 4.4 short ratio; Sierra Pacific Resources (SRP), with a 2.5 short ratio; and Mentor (MNT), with a 27.6 ratio.

Another auto company on the short list is Tata Motors (TTM), the Indian auto manufacturer, with a short ratio of 5.1. The company recently reported that its first-quarter profit fell 30% due to increased input costs and foreign exchange losses. The stock has a P/E of 8 and a PEG of 0.53, and it pays a yield of 3.7%.

Tata shows up in an interesting Stockpickr portfolio called Far East Portfolio, which contains stocks based in China and India. The portfolio also lists Baidu.com (BIDU), with a short ratio of 0.9; Solarfun Power Holdings (SOLF), with a short ratio of 2.0; and Sohu.com (SOHU), with a 1.7 ratio.

Speaking of India, General Motors (GM) will be starting production at its second plant in India in September. General Motors has a short ratio of 4.4. The company lost $15.5 billion in the second quarter, or $6 billion if one-time costs are excluded. Based on what the stock has been paying during the last four quarters, it is yielding 9.8%.

GM is owned by the Hancock Horizon Value Trust, rated five stars by Morningstar and managed by David Lundgren. It has had an average annual return of 18.35% over the last five years. Hancock also owns Precision Castparts (PCP), with a 1.2 short ratio; Cummins (CMI), with a 1.3 ratio; and ConocoPhillips (COP), with a 2.3 ratio.

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

Posted on Aug. 6, 2008


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.