Many investors and traders believe that the stock market has hit bottom. If that is true, there are some interesting short-squeeze plays available on heavily shorted stocks.

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.

Stockpickr has come up with a list of heavily shorted stocks that trade on the New York Stock Exchange and compiled the NYSE Short-Squeeze Plays for August portfolio.

One of the stocks with the highest short ratios is Sealy (ZZ), the large mattress manufacturer, which has a short ratio of 36.9. The company just announced the release of its new Sealy Posturepedic Innerspring mattress, which is supposed to eliminate tossing and turning due to uncomfortable pressure points. The stock has a P/E of 10, a PEG of 1.42 and a yield of 4.3%.

Sealy shows up in an interesting Stockpickr portfolio called Time to Look for Stocks Below $10, which lists stocks that have market caps over $500 million, P/E ratios below 20 and PEG ratios below 1. Other stocks in the portfolio include Siliconware Precision Industries (SPIL), with a short ratio of 2.4; Brightpoint (CELL), with a short ratio of 6.4; and Office Depot (ODP), with a 1.6 ratio.

Another NYSE stock with a high short ratio is CH Energy Group (CHG), an electric and natural gas utility that owns Central Hudson Gas & Electric Corporation and Central Hudson Enterprises Corporation. The stock has a short ratio of 24.7. The company reported a 68% drop in earnings for the latest quarter and a reduction in its full-year earnings outlook. The stock has a P/E of 17 and a yield of 5.9%.

CH appears in the Stockpickr portfolio called Top-Yielding Electric Utilities. The portfolio also includes Great Plains Energy (GXP), with a 4.6 short ratio; Progress Energy (PGN), with a 3.4 ratio; and Pinnacle West Capital (PNW). with a 3.5 ratio.

Polaris Industries (PII) is another stock with a high short interest, with a short ratio of 18.5. This manufacturer of all-terrain vehicles, snowmobiles and motorcycles just announced that an outsider, Scott W. Wine, will become the company's chief executive on Sept. 1. Wine is coming from UTC Fire and Security, a unit of Hartford, Conn.-based United Technologies. The stock has a P/E of 14, a PEG of 1.08 and a yield of 3.3%.

For the full list of the top New York Stock Exchange short-squeeze plays for the month of August, go to Stockpickr.com.


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.


Posted on Aug. 13, 2008