Top Health Care Short-Squeeze Plays

Updated from 7:09 a.m. EDT

Health care stocks generally have underperformed most other sectors during the last year or two. This underperformance could offer an opportunity for short-squeeze plays from heavily shorted biotechnology, health facilities, pharmaceutical and medical equipment stocks.

A short squeeze takes place when a stock's short-sellers are forced to cover their positions quickly when the stock they are betting against starts climbing on positive news. As the short-sellers are forced to cover, the price of the stock often moves even higher.

The metric for measuring short-squeeze plays is the short ratio, which represents the number of days it would take a stock's short sellers to cover their positions based on the stock's recent average daily trading volume.

Stockpickr has compiled the Top Health Care Short-Squeeze Plays, a list of heavily shorted stocks in the sector that have the potential to climb higher on any positive catalyst.

One of the most heavily shorted health care-related stocks is HealthSouth Corp. (HLS Quote), an inpatient rehabilitation services provider with a short ratio of 40. In 2003, a fraud scheme sent shares plummeting. The company is slated to report its most recent quarterly results on May 7. The stock has a forward price-to-earnings (P/E) ratio of 33 and a P/E-to-growth (PEG) ratio of 6.6.

HealthSouth shares are owned by Highfields Capital Management, $8.3 billion hedge fund. Highfields also holds shares of Clear Channel Communications (CCU Quote), which has a 3 short ratio, Qualcomm (QCOM Quote), which has a 1.2 short ratio, and PNC Financial Services (PNC Quote), with a 3 short ratio.