A lot of bad news has been hitting a lot of the technology stocks. For example, Steve Jobs has taken a medical leave from Apple (AAPL), and AmTech Research just knocked down its rating on Dell (DELL) from neutral to sell.
If there is any good news at all, the short-sellers may start to scramble to cover their positions, which could create some short-squeeze opportunities.
A short squeeze takes place when short sellers quickly cover their positions on optimistic news, which can move the price of the stock up sharply. The metric 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 technology stocks and came up with a list of the top tech short-squeeze plays for January.
One of the heavily shorted tech stocks is EarthLink (ELNK), the Internet service provider, with a short ratio of 19, which means that it would take approximately 19 days for the short-sellers to cover their positions. The company will announce its 2008 full-year results on Feb. 5. It will record a noncash impairment charge of $80 million to $90 million in its fourth quarter ended Dec. 31, 2008, due to its 2006 acquisition of New Edge Networks. The stock has a very good P/E of 5.5, much better than the average P/E of 10 for the diversified telecommunications services industry. Unfortunately, it doesn't pay a dividend.
EarthLink is owned by Steel Partners, a San Francisco-based activist hedge fund managed by Warren Lichtenstein. It looks for companies trading at a discount to intrinsic value, with the goal of being either the largest or one of the largest shareholders so as to influence the direction of the company. It also holds Rowan Companies (RDC), with a short ratio of 2.7, a P/E of 3 and a yield of 2.6%, along with stocks that don't pay a dividend: Adaptec (ADPT), with a short ratio of 5 and a P/E of 42, and Conseco (CNO), with a short ratio of 4.9 and a forward P/E of 4.
Tekelec (TKLC) is another heavily shorted stock, also with a short ratio of 19. It makes and markets telecommunications products and services including number portability applications. Last November, it was named to Forbes' list of America's 200 Best Small Companies. Last month, the company announced the purchase of privately held mBalance, a leading developer of messaging solutions. The stock has a P/E of 17, which is unfavorable compared with the industry average of 9. It doesn't pay a yield.
Tekelec is held by David J. Greene, a value investing money manager founded in 1938. It also owns Cisco Systems (CSCO), with a short ratio of 1.8; Cooper Companies (COO), with a short ratio of 11.6; and Southern Union (SUG), with a short ratio of 2.4.
For more ideas, check out the Stockpickr portfolio of top tech short-squeeze plays for January.
Posted on Jan. 20, 2009
