By Stockpickr Staff
Posted on May 11, 2009
Top tech stocks such as Research In Motion (RIMM) and Google (GOOG) have been making strong moves lately. According to Jim Cramer, "These gravity-defiers must be killing the shorts." And Disney's (DIS) stock spiked when the company released stronger earnings than expected, partially due to the fact that the shares were heavily shorted, said Cramer.
When short-sellers quickly buy in shares of stock to cover their positions, it creates what is called a short squeeze, rapidly moving the stock price up. 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 combed through the list of stocks traded on the New York Stock Exchange and compiled a portfolio of the top NYSE short-squeeze plays.
One Big Board stock with a high short interest is candy company Tootsie Roll Industries (TR), which has a short ratio of 30.1. This means that is would take more than 30 days for the short-sellers to cover their positions based on the current volume of the stock. TheStreet.com Ratings downgraded the company from buy to hold back in March due to a reduction in net income and lowered return on equity. On the other hand, the stock has $86 million in cash, with only $7.5 million in debt. It even pays a dividend of 1.3%, well-covered by its operating cash flow of $57 million.
Tootsie Roll is owned by the Keeley Small Cap Value Fund, which has a Morningstar rating of three stars and is managed by John Keeley Jr. The fund has ranked in the top 12% of all funds in its category of small blend funds for the last five years. Other stocks owned by Keeley include Ralcorp Holdings (RAH), with a short ratio of 1.7; The Hanover Insurance Group (THG), with a 1.1 short ratio; and South Jersey Industries (SJI), with a 5.4 ratio.
Another NYSE stock with short-squeeze potential is HNI (HNI), which makes and sells office furniture. This heavily shorted stock carries a 25.5 short ratio. Last month, the company posted a loss of 27 cents a share for the latest quarter, caused by a higher cost of materials and a reduction in sales volume. Revenues dropped to $405.7 million, below analysts' expectations. The company has $32 million in cash and $315 in total debt. It pays a generous yield of 5.6%. Its dividend payout of $38 million is easily covered by its operating cash flow of $178 million.
HNI is owned by Royce & Associates, a New York City-based hedge fund that specializes in smaller companies with market caps up to $5 billion. Royce also has Lincoln Electric Holdings (LECO), with an 8.3 short ratio; Endo Pharmaceuticals Holdings, (ENDP) with a 4.5 short ratio; and Unit (UNT), with a ratio of 6.2.
For more ideas, check out the Top NYSE Short-Squeeze Plays portfolio.
At the time of publication, the author was long Disney.
