The stock market has taken a couple of hits lately. When a stock drops sharply, it may create some interesting short-squeeze opportunities.

A short squeeze takes place when a stock's short-sellers are forced to cover their bearish positions quickly on positive news that drives the stock price higher. This short-covering then works to drive the price of the stock up even more. The main metric for measuring a short-squeeze play is the short ratio, which represents the number of days it would take a stock's short sellers to cover their position based on the stock's recent average daily trading volume.

Stockpickr has compiled a list of the top Nasdaq short-squeeze plays for August.

A Nasdaq stock with one of the highest short interests is First Busey (BUSE), which has a short ratio of 43.9. This Illinois-based bank holding company recently reported that its net income for the quarter ended June 30 was 13 cents per fully diluted share, versus 37 cents per share for the same period in 2007. The stock has a P/E of 17 and a PEG of 2.47, and it pays a yield of 4.9%.

Busey shows up in a Stockpickr portfolio called FDIC Toxic 90 Banks, which attempts to recreate the private FDIC list of 90 publicly traded banks that might fail. The portfolio also includes Zions Bancorp (ZION), with a short ratio of 4.9; KeyCorp (KEY), with a 1.4 short ratio; and Astoria Financial (AF), with a 3.4 ratio.

Another Nasdaq with a high short interest is InnerWorkings Inc. (INWK), a provider of managed print and promotional procurement solutions and printed products, which has a short ratio of 43.6. It just announced the completion of its acquisition of New York City-based Mikam Graphics, a leading print management firm. The company was just downgraded by Cowen from outperform to neutral. The stock has a P/E of 21 and a PEG of 0.72.

InnerWorkings is owned by Tiger Global , a $4.5 billion hedge fund managed by ex-principals of legendary trader Julian Robertson's Tiger Management. It also owns MasterCard (MA), with a short ratio of 1.2; Priceline.com (PCLN), with a 5.1 ratio; and Research In Motion (RIMM), with a 1.3 ratio.

Mobile Mini (MINI) is another heavily shorted stock, with a short ratio of 39.8. The company is involved in the business of providing portable storage solutions. The company just announced a 3.6% increase in revenues for the quarter ended June 30 and a 3-cent drop in net income vs. the same period in 2007. The stock has a P/E of 20 and a PEG of 0.92.

Mobile Mini shows up in the portfolio of the Pacific Advisors Small Cap Fund, has a Morningstar rating of three stars and is managed by George Henning. The fund has had an average annual return of 36.68% over the last five years. It also owns Hornbeck Offshore Services (HOS), with a short ratio of 5.7; Terra Industries (TRA), with a 2.7 ratio; and Kirby (KEX), with a 2.8 ratio.

For more heavily shorted Nasdaq stocks, check out the Nasdaq Short-Squeeze Plays portfolio at Stockpickr.com.

Posted on Aug. 20, 2008