One of the best times to invest in short-squeeze plays is after sharp drops in the stock market, similar to what we've seen over the last several days.
A short squeeze takes place when the short-sellers short-interest in a stock 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.
Stockpickr has come up with a list of the top New York Stock Exchange short-squeeze plays for the month of September.
One of the stocks with the highest short ratios is Thor Industries (THO), the recreational vehicle manufacturer, which has a short ratio of 73.1, with 43% of its float shorted. The company recently announced that sales for the latest quarter were down 25% from the same quarter last year. However, its bus sales were up 5% over last year. The stock has a P/E of 12, a PEG of 1.05 and a yield of 1%.
Thor is favored by Ronald Muhlenkamp, head of Muhlenkamp & Company and portfolio manager of the Muhlenkamp mutual fund. He has outperformed the S&P 500 over the last 10 years with an average annual return of 16.2%. Other stocks he likes include Cemex (CX), with a 9.4 short ratio; Merrill Lynch (MER), with a short ratio of 1.5; and ConocoPhillips (COP), with a 2.6 ratio.
Another NYSE stock with a high short ratio is Tempur-Pedic International (TPX), which manufactures pillows, mattresses, adjustable beds and other related products. The stock has a short ratio of 52, with an astounding 89% of the float shorted. The company was recently upgraded by Longbow from neutral to buy. The stock has a P/E of 9, a PEG of 0.89 and a yield of 3%.
Tempur-Pedic is owned by the ProFunds UltraSmall Cap Investors Fund, which is managed by Elisa Petit. The fund has had an average annual return of 24.02% over the last five years. It also owns CF Industries Holdings (CF), with a 0.7 short ratio; Flir Systems (FLIR), with an 18.1 ratio; and Equinix (EQIX), with a 14.9 ratio.
HNI (HNI) is another stock with a high short interest, with a short ratio of 42.7. This manufacturer of office furniture just paid its 214th consecutive quarterly dividend. The stock has a P/E of 16, a PEG of 1.37 and a yield of 3.7%.
HNI is owned by the Tiger Global , a hedge fund with $4.5 billion under management, run by ex-principals of legendary trader Julian Robertson's Tiger Management The fund also owns Google (GOOG), with a 1.8 short ratio; America Movil (AMX), with a 2.4 ratio; and Baidu.com (BIDU), with a 2.2 ratio.
For a list of the top New York Stock Exchange short-squeeze plays for the month of September, go to Stockpickr.com.
Posted on Sept. 21, 2008
