Top 10 Potential Short-Squeeze Bank Stocks

James Altucher

Many bank stocks have taken a beating due to the recent subprime mortgage issues that have rocked the industry. Because of their troubles, many investors have taken substantial short positions in these bank stocks.

If investors are looking to find a short-term play on a stock, one technique is to look for good stocks with a high short ratio, which is essentially the number of days, based on the average daily volume of shares traded, it would take those shorting the stock to cover their bets if the stock moves higher.

With any unexpected good news, the short-sellers would need to cover their positions, driving up the price of the shares even higher. With this in mind, Stockpickr has reviewed the bank stocks and compiled a list of the Top Potential Short-Squeeze Bank Stocks.

One bank stock with one of the highest short ratios is First Commonwealth Financial(FCF), with a short ratio of 21. This means that it could take 21 days for the short-sellers to buy to cover their positions.

The company -- which owns First Commonwealth Bank, serving western and central Pennsylvania -- recently declared its latest dividend, which went ex-dividend on Sept. 26, resulting in a yield near 5.8%. It has a price-to-earnings (P/E) ratio of 17 and a P/E-to-growth (PEG) ratio of 3.2.

First Commonwealth is also part of the Small Banks portfolio at Stockpickr, which includes US Bancorp(USB) with a short ratio of 2.3, and Washington Mutual(WM), which has a short ratio of roughly 4.

Another highly shorted bank stock is FNB Corp(FNB), which has a short ratio of 16. FNB is another Pennsylvania-based bank holding company that also serves Ohio and Tennessee with its insurance, consumer finance and wealth management divisions. FNB will host its third-quarter earnings conference call on Friday, Oct. 19. The stock has a P/E of 14, a PEG of 2.7 and a yield of 5.5%.

FNB is also listed among the Top Dividend Raisers With Lowest P/Es, a portfolio that also includes State Auto Financial(STFC), a property and casualty insurance company with a very high short ratio of 20, and Parker-Hannifin(PH), a hydraulic manufacturing company that has a short ratio of 4.

Another heavily shorted bank stock is Oriental Financial Group(OFG), with a short ratio of 9. This Puerto Rico-based bank holding company owns Oriental Bank and Trust. In the last week of September, Executive Vice President Lidio Soriano bought 24,500 shares of the company's stock for prices between $11 and $11.64. The stock, which closed Tuesday at $11.60, has a forward P/E of 11, a PEG of 2 and a yield of 4.5%.

Oriental Financial was recently featured in Barron's Insider Purchases 10-13-2007, a list of the largest insider purchases mentioned in the weekly publication. Other stocks on the list are Aircastle(AYR), a jet aircraft leasing company with a short ratio of 4.4, and Par Pharmaceutical(PRX), a generic-drug manufacturer with a short ratio of 6.

For the rest of the stocks on the list, check out the Top Short-Squeeze Bank Stocks, including one with a short ratio of more than 50.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Oriental Financial Group to be a small-cap stock. 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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