Last week, the latest short interest figures came out, showing the number of shares shorted for stocks. From this information, we can calculate the short ratio, also called the "days to cover" ratio, which is the number of days it would take the short sellers to cover their positions based on the average daily volume of the stock.
Stockpickr has taken the list of stocks with the highest short ratios and extracted the ones with price/earnings-to-growth (PEG) ratios below 2, compiling them in the High Short Ratios/Low PEGs portfolio.
The nice feature about heavily shorted stocks is that they can shoot sharply higher on good news. And generally speaking, the lower the PEG ratio, the more undervalued the stock. All the stocks on the list have market caps greater than $350 million.
At the top of the list is Thomson Corp. (TOC), with an outrageously high short ratio of 145. This publisher of business and professional books and software just reported a huge earnings jump to $4.61 a share, before adjustments, up from 65 cents a share last year. After adjustments, earnings were 48 cents a share. This was on a revenue growth of 11%. Thomson is in the process of taking over Reuters Group PLC. The stock has a P/E ratio of 20 and a PEG of 1.7.Thomson also appears in the Stockpickr portfolio called Book Stocks, a listing of the publicly traded companies in the book-publishing business. Other stocks in the portfolio are John Wiley & Sons (JW.A), publisher of the popular "Dummy" book series, with a short ratio of 4.8; and McGraw Hill (MHP), which has a short ratio of 1.9.