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Top Casino Short-Squeeze Plays

Stockpickr Staff

Many short-sellers have taken a negative interest in casino stocks, creating a potential opportunity for short-squeeze plays in the sector.

A short squeeze takes place when a stock's short-sellers are forced to cover their bearish positions quickly on positive news that drives the stock price higher. This short-covering then works to drive the price of the stock up even more. The main metric for measuring a short-squeeze play is the short ratio, which represents the number of days it would take a stock's short sellers to cover their position based on the stock's recent average daily trading volume.

Stockpickr has combed through the stocks in the sector and compiled a list of the most heavily shorted names in the Top Casino Short-Squeeze Plays.

One heavily shorted gambling stock is Ameristar Casinos (ASCA Quote - Cramer on ASCA - Stock Picks), with a short ratio of 15. This Las Vegas-based operator of casinos, with operations in Missouri, Iowa, Mississippi, Colorado, Nevada and Indiana, was upgraded last week by Brean Murray from hold to buy. In March, BMO Capital Markets initiated coverage on the stock with a market perform rating. The stock has a price-to-earnings (P/E) ratio of 15, a P/E-to-growth (PEG) ratio of 1.4 and a yield of 2.3%.

Ameristar shares are owned by Stadia Capital, a New York-based hedge fund managed by Greg Markel. Stadia also owns shares of Deckers Outdoor (DECK Quote - Cramer on DECK - Stock Picks), with a 6.1 short ratio, Longs Drug Stores (LDG Quote - Cramer on LDG - Stock Picks), with a 7 short ratio, and NII Holdings (NIHD Quote - Cramer on NIHD - Stock Picks), with a 3 short ratio.

Another casino stock with a heavy short interest is Pinnacle Entertainment (PNK Quote - Cramer on PNK - Stock Picks), with a short ratio of 11.4. The company owns and operates casinos in Louisiana, Indiana, Missouri and Nevada. It also operates the Casino Magic group of casinos in the Patagonia region of Argentina and The Casino at Emerald Bay in the Bahamas. The stock was upgraded last week by Lehman Brothers from equal-weight to overweight. The stock has a forward P/E ratio of 33 and a PEG ratio of 4.

Pinnacle shows up in the portfolio of the FBR Small Cap Fund, a five-star Morningstar-rated fund managed by Charles Akre. The fund also holds shares of American Tower (AMT Quote - Cramer on AMT - Stock Picks), with a short ratio of 4.5, CarMax (KMX Quote - Cramer on KMX - Stock Picks), with a short ratio of 21, and Pool Corp. (POOL Quote - Cramer on POOL - Stock Picks), with a 14.5 short ratio.

Scientific Games (SGMS Quote - Cramer on SGMS - Stock Picks) has a short ratio of 9. This manufacturer of gaming-related technology equipment last Friday posted better-than-expected adjusted first-quarter earnings. The company's CEO, A. Lorne Weil, plans to step down at the end of the year to be replaced by Intelstat chairman Joseph Wright. The stock has a P/E ratio of 41 and a PEG ratio of 1.2.

Scientific Games is favored by buyout tycoon Ron Perelman, who recently increased his position. Perelman also owns Revlon (REV Quote - Cramer on REV - Stock Picks), with a P/E ratio of 20, and M&F Worldwide (MFW Quote - Cramer on MFW - Stock Picks), with a 9 short ratio.

To see the entire list, check out the Top Casino Short-Squeeze Plays at Stockpickr.com.