By Stockpickr Staff
Posted on June 22, 2009
If you have noticed a late-day bounce before trading closes for the day, it may be caused by a short squeeze, according to Rev Shark. The power of the short squeeze can make a stock rise quickly, creating opportunities on the long side for vigilant investors. With the recent drop in financial stocks, there may be some short-squeeze opportunities in that sector to keep an eye on.
A short squeeze takes place when short-sellers quickly buy in shares of a stock in order to cover their bearish positions, driving the price of the stock up sharply. 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 positions based on recent average daily volume.
Stockpickr has reviewed the heavily shorted financial stocks and created a portfolio of the top financial short-squeeze plays, all of which have market caps of more than $500 million.
A financial stock with one of the highest short interests is Financial Federal (FIF), a New York-based financial services company that provides lending, financing and leasing services to small and medium-sized companies. Its short ratio is 23.4, which means that it would take over 23 days for the short-sellers to cover their positions, based on the stock's recent trading volume.
Financial Federal just announced that its diluted earnings per share decreased by 20% and that net income for the latest quarter decreased by 19% to $10.3 million from $12.7 in the third quarter of fiscal 2008 due to lower receivables and higher nonperforming assets. In a press release, CEO Paul R. Sinsheimer said: "I am proud of the outstanding effort put forth by our entire team that limited net charge-offs for the quarter to 45 basis points and that generated a 10% ROE with a leverage below 3x."
The company pays a decent yield of 2.8%, with a total payout of $15.5 million, covered four times over by its operating cash flow of $66.9 million. It has $1.2 billion in total debt, with $7.5 million in cash.
Financial Federal shows up in the portfolio of the Lord Abbett Small-Cap Value Fund, which is rated five stars by Morningstar and is managed by Gerard S.E. Heffernan Jr. The fund is ranked in the top 3% for the last five years of all the funds in its category of small blend funds. The fund also owns CurtissWright (CW), which has a short ratio of 6.6; Anixter International (AXE), with a 7.0 short ratio; and Reliance Steel & Aluminum Co. (RS) with a ratio of 3.0.
Another heavily shorted stock in the financial sector is Glacier Bancorp (GBCI), a Montana-based multibank holding company with branches in Montana, Colorado, Idaho, Utah, Wyoming and Washington. The stock has a short ratio of 20.3. Last month, Jim Cramer recommended Glacier as one of the bank stocks that can benefit from a Wall Street Journal report that many local banks are suffering big losses.
Glacier pays a fairly high yield of 3.4%. It has a $30.5 million dividend payout covered by $80.3 million in operating cash flow. Their total debt load is $1.56 billion, with $151.8 million in cash.
Glacier is owned by the Neuberger Berman Genesis Fund, a Morningstar-rated five-star fund managed by Judith M. Vale. The fund ranks in the top 7% of all funds in its small nlend category over the last five years. The fund also owns Church & Dwight (CHD), with a short ratio of 3.7; Aptargroup (ATR), with a fairly high short ratio of 10.5; and Compass Minerals International (CMP), with a 3.8 short ratio.
For more ideas, check out the Top Financial Short-Squeeze Plays portfolio at Stockpickr.
Author has no positions in stocks mentioned.
