Top 10 Potential Short-Squeeze Stocks

One way to take play off the speculation as to what the Federal Reserve might do over the next few months is to look for potential short-squeeze situations in the financial, home lending and homebuilding industries. Many of these stocks have been heavily shorted, but they have also dropped in price significantly due to subprime-mortgage concerns.

The short interest in these stocks sets them up for a possible short-squeeze play whereby the short-sellers have to buy shares quickly to cover their bets, driving up the price of the stock sharply. Stockpickr has come up with a list of the top short squeezes in the financial, home lending and homebuilding sectors. Some are fairly conservative, some are quite speculative.

In the banking field, Washington Mutual(WM Quote) has a very high short ratio compared to its peers, at 7.7 with 5.5% of the float shorted. The short ratio is the number of days it would take the short-sellers to cover their positions based on the recent daily volume.

WaMu is one of the stocks that has been hit hard in this downturn. However, if you look at its financials, the stock looks quite favorable. It has a price-to-earnings (P/E) ratio of 10 and a P/E-to-growth ratio of 0.87 and yield of 6.6%. The company recently reported a 33% reduction in net income, which was a major cause of the stock price drop.