Top Potential Short-Squeeze Health Stocks

A short squeeze takes place when short-sellers scramble to cover their bearish positions in a rising stock by buying shares. There are several things that can trigger the short squeeze -- favorable earnings reports, takeover news, or the best thing, a stock market bottom.

Many health care stocks are recession-proof and are a great play on the baby boomer market. Since the short-interest reports have recently come out, Stockpickr has reviewed the health care stocks and extracted the ones with the highest short ratios into the Top Health-Care Short-Squeeze Stocks. (A short ratio is the number of days it would take the short-sellers to cover their positions based on the recent average daily volume.)

The stock with the highest short ratio, at 18, is National Healthcare(NHC). This operator of long-term health care, assisted living and independent living centers reported third-quarter results earlier this month that showed a 41% year-over-year increase in earnings per share on a revenue increase of 2.4%. The stock has a price-to-earnings (P/E) ratio of 14.7 and a yield of 1.7%.

National Healthcare appears in Long-Term Care Stocks, a Stockpickr portfolio that also includes Sun Healthcare(SUNH), with a short ratio of 11.1, Kindred Healthcare(KND), with a 9.1 short ratio, and Skilled Healthcare(SKH), with a short ratio of 9.6.

Another high short-ratio stock is Chattem(CHTT), a maker and marketer of over-the-counter health-care products that has a short ratio of 13.9. The stock was recently upgraded by Wachovia from market perform to outperform. It has a P/E of 26.8 and a PEG of 1.7.