The huge drop in the stock market has created significant short-squeeze opportunities, especially in the financial stock arena.
A short squeeze takes place when a stock's short-sellers scramble to cover their bearish positions when that stock moves sharply upward; their buying ends up pushing shares even higher. Short positions of stocks are measured by the short-squeeze ratio, which represents the number of days it would take for the short-sellers to cover their positions based on the recent daily volume of the stock.
This week, Stockpickr has compiled a list of the top money center bank short-squeeze plays.
One bank stock with a high short ratio is Toronto-Dominion Bank (TD), an Ontario, Canada-based banking and financial services company, which has a short ratio of 17.1. This was one of the five banks that considered taking over Washington Mutual. Its revenues for the latest quarter were up 6.8%, with a 9.6% drop in earnings. The stock has a P/E of 12 and a PEG of 1.25, with a 4% yield.
Toronto-Dominion shows up in the Stockpickr portfolio called Dividend-Increasers for the Week Ending 08-30-08, which contains stocks that boosted their dividends at the end of August. Other stocks in the portfolio include Harris (HRS), with a short ratio of 0.9; Philip Morris International (PM), with a short ratio of 3.3; and H&R Block, (HRB) with a ratio of 2.4.
Another heavily shorted major bank is Royal Bank of Canada (RY), with a short ratio of 13.5. This Toronto-based bank holding company just announced that it increased interest rates for most of its mortgages by 0.35%. The stock has a P/E of 14, a PEG of 1.89 and a yield of 4.1%.
Royal Bank is owned by the Gartmore Global Financial Services Fund, which invests at least 80% of its portfolio in stocks in the financial services sector. It had a one-year return of 18.3%. Gartmore also owns Goldman Sachs (GS), with a short ratio of 0.9, and Banco Santiago (SAN), with a ratio of 1.7.
TCF Financial (TCB), the holding company for TCF National Bank and TCF National Bank Arizona, has a short ratio of 6.8. It was recently downgraded by Friedman Billings from market perform to underperform. It has a P/E of 13, a PEG of 2.77 and a yield of 5.6%.
TCF Financial is owned by the John Hancock Regional Bank Fund, which invests at least 80% of its assets in stocks of regional banks and lending companies. The fund has had an average annual return of 7.88% over the last five years. Its portfolio also includes State Street (STT), with a short ratio of 1.2; Bank of New York Mellon (BK), with a ratio of 0.7; and Cullen/Frost Bankers (CFR), with a 3.2 ratio.
Find more ideas in the Top Major Bank Short-Squeeze portfolio at Stockpickr.com.
Posted on Oct. 2, 2008
