Stockpickr: Three Short-Squeeze Plays

James Altucher

Each month I write a column on the latest potential short squeezes. At Stockpickr, we identify stocks that exhibit both high short interest and a high rate of insider-buying. These stocks are compiled in the Short Squeeze portfolio.

Put simply, a stock with high short interest has a lot of people betting the stock price will go down. If the stock starts to move up, then all of those people who are short the stock have to buy shares to cover their losses. This creates a squeeze.

The stocks on the list we compile, however, also show extensive insider-buying. In other words, the CEO or other people intimately familiar with the company are buying the stock.

So I ask, who knows more? The CEO and other insiders, or the random daytraders betting against the company?

Last month's short-squeeze column featured Waste Services(WSII) and The Greenbrier Cos.(GBX). In the last month of trading, Waste Services has since climbed from $9.99 to $10.97, and Greenbrier shares have gone from $27.25 to $31.32.

Jim Cramer also looked at Stockpickr's Short Squeeze portfolio and featured Greenbrier on his Mad Money TV show.

This month I'm intrigued by Gaiam(GAIA), another stock that's on the list. Gaiam is the leader in fitness, yoga and other personal improvement videos. For example, if you check into any hotel owned by LodgeNet Entertainment and watch a fitness video on the in-hotel network, it's a Gaiam video.

There are 2.2 million shares short of Gaiam stock, and the average trading volume is only 161,000. Using a back-of-the-envelope calculation, it would take more than 10 days of nonstop short-covering for the shorts to stop losing money if the stock were to move higher.

Analysts expect Gaiam to earn 31 cents a share in 2007, up from 23 cents in 2006 and 8 cents in 2005. That's nice growth. Revenue is expected to grow from $217.7 million to $247.7 million.

The company and insiders also just bought back $32 million worth of stock from Steve Case's Revolution Living. Who were these insiders? Prentice Capital, a spinoff of Stevie Cohen's SAC Capital, bought back $7 million of the shares. I like following Prentice because it's a trailblazer. Often, SAC piggybacks its shares with Prentice, as it did with another retailer, Wet Seal(WTSLA).

Stockpickr lists the portfolio holdings for both Prentice Capital and SAC Capital.

Another stock with high short interest is Consolidated-Tomoka Land(CTO). The company is involved in all sorts of real estate development operations, including commercial real estate, land sales, leading properties for mineral exploration, and golf course development.

With roughly 228,000 shares short and an average trading volume of just 13,000, it would take several days for the shorts to cover if the stock were to rise. Shorts are probably betting that either the decline in real estate or the decline in oil from their respective highs will eventually affect this stock.

Also, despite recently announced record earnings and a record dividend, the stock does trade at a lofty price-to-earnings ratio of 42. However, this P/E ratio does not take into account the value of Consolidated-Tomoka's land holdings, which could be substantial.

Recently, Wintergreen Advisers, which owns roughly 16% of the company and is actively involved with management, bought another $2 million or so of Consolidated-Tomoka stock at prices ranging from $78.97 to $79.99. Wintergreen has been steadily increasing its shares over the past year.

Additionally, one of my favorite activist funds, Barington Capital, owns the stock. Consolidated-Tomoka was also mentioned in a recent Barron's article that prompted a new portfolio on Stockpickr called Insider Buying: Eating Their Own Cooking, in which Consolidated-Tomoka is listed.

Another stock that jumped recently on fears of a short squeeze is Scientific Games(SGMS), which makes over 20 billion tickets a year for instant lottery games.

Ron Perelman recently bought about $124 million worth of Scientific Games shares for roughly $31 a share. Analysts expect the company's earnings to climb from 95 cents a share in 2006 to $1.31 in 2007. Scientific Games currently trades at an enterprise value-over-EBITDA ratio of just 14.

To see the full list of potential short-squeeze candidates, check out the 10 Short Squeezes portfolio on Stockpickr. You can keep track of updates to this portfolio by rating the portfolio with four stars. By doing so, you will be notified via email whenever the portfolio is updated.

Stockpickr tip of the day: I'm excited about a brand-new feature on Stockpickr. I keep track of about 200 to 300 blogs for my Daily Blog Watch column on TheStreet.com, and now you can see my favorite 100 or so blogs on the Stockpickr Blog Index.

The authors of these blogs are constantly updating throughout the day, and it's difficult sometimes to keep track. Often I want to keep track of only the blog posts related to my portfolio (or a sector-specific portfolio). So now Stockpickr scours the Internet every minute, all day long, reads automatically the top 200 blogs we've fed it, and automatically indexes relevant blog posts for every portfolio and stock page on the site.

For instance, to see all the recent blog posts that mention any stock in Warren Buffett's portfolio, go to his portfolio page and look down the right-hand side. You'll see listed all TheStreet.com videos and all blog posts related to the portfolio. Clicking on a link will take you directly to that blog.

And from Stockpickr's main blog search page you can search on "Cramer," for instance, and see all the blog posts related to Cramer since we started indexing.

What's the difference between this and a blog search engine like Technorati or Google Blog Search?

For one thing, we are automatically categorizing based on criteria we've set up instead of blind searching. Second, these results do not include every blog but mostly the blogs we've spent the past year searching out to help put together the Blog Watch column every day. Arguably, they are the best finance and stock blogs out there, but more importantly, the list is constantly changing. If you believe I'm missing any blogs for indexing, please send them to me.

Most importantly, we hope it helps to in making an investment decision easier. All feedback is welcome on this new feature.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Gaiam, The Greenbrier Cos., LodgeNet Entertainment and Waste Services to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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