Top 10 Potential Short-Squeeze Airline Stocks

With earnings and summer travel results fast approaching and the Thanksgiving and Christmas holiday travel season soon upon us, many investors are starting to look at the airlines. However, many short-sellers have taken a negative stance on these stocks and bet heavily against them.

But such a scenario creates some opportunities, because investors may be able to take advantage of these heavily shorted stocks. On any good news, strong numbers or, say, a sharp drop in gasoline prices, these stocks could rise, and rise big, as short-sellers are forced to cover their bets.

With that in mind, Stockpickr combed through the stocks in the sector with the highest short ratios and compiled the Top 10 Airline Short Squeezes portfolio.

As a reminder, the short ratio is the number of days it would take the short-sellers to cover their position, based on the stock's recent average daily volume. Let's take a look at some of the names on the list.

One of the airlines with the highest short ratio is AirTran HoldingsAAI, the holding company for AirTran Airways, which serves the eastern part of the U.S. from its hub in Atlanta. The stock has a short ratio of 10.7 with more than 27% of the float shorted.

The airline just reported that its capacity and occupancy reached an all-time record in August. The stock has a price-to-earnings ratio of 26 and a P/E-to-growth ratio of 0.8.

AirTran shares are owned by the five-star Morningstar-rated Gartmore Small-Cap fund (GSXAX), which has generated an outstanding average annual return of 27% over the last three years. Gartmore also owns Regal Entertainment GroupRGC, an operator of more than 500 theaters throughout the U.S. that has a short ratio of 7.1.