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Potential Short-Squeeze Plays for the New Year

James Altucher

A short-squeeze takes place when unexpected positive news comes out about a heavily shorted stock, and as a result the stock moves sharply higher due to the short-sellers covering their bearish positions in the stock. A stock's short interest is measured by the short ratio, which is the number of days it would take the short-sellers to cover their positions based on the stock's recent trading volume.

Stockpickr has reviewed the stocks with the highest short ratios that have market caps over $250 million and relatively low price/earnings-to-growth (PEG) ratios (below 2). These stocks are compiled in the Top Year-End Short-Squeeze Stocks.

One of the stocks with the highest short ratios is Healthcare Services Group(HCSG Quote), which provides various maintenance and cleaning services to nursing homes, retirement homes, rehabilitation centers and hospitals. The company carries a short ratio of 25. In October, the company increased its quarterly dividend by 9% to 12 cents a share, giving it a yield of 2.2%. The stock has a price-to-earnings (P/E) ratio of 31 and a PEG of 1.8.

Healthcare Services is part of the portfolio of Alpine Dynamic Dividend Fund, a five-star Morningstar-rated fund that has generated an average annual return of more than 16% over the last three years. Alpine also owns shares of BHP Billiton(BHP Quote), which has a short ratio of 1.5, Macquarie Infrastructure(MIC Quote), with a 4.9 short ratio, and Temple-Inland(TIN Quote), which has a 3 short ratio.

Another stock with a high short ratio is Steak n Shake(SNS Quote), an Indianapolis-based owner and franchisor of restaurants throughout the U.S. Its short ratio is at 22. At the end of November, Stifel Nicolaus initiated coverage of the company with a hold rating. The stock has a P/E of 24 and a PEG of 2.8.

Steak n Shake is a stock owned by Michael Dell, founder of Dell Computer(DELL Quote), through investment vehicle MSD Capital. Dell also owns IHOP(IHP Quote), which has a 4 short ratio, Time Warner Telecom(TWTC Quote), which has a 12 short ratio, and Dollar Thrifty Automotive Group(DTG Quote), with a 12 short ratio.

For the top stocks with the highest short ratios to start off the New Year, check out the Top Year-End Short-Squeeze Stocks at Stockpickr.com.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Steak n Shake 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.