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Top Service Sector Short-Squeeze Plays

Updated from 6:30 a.m. EST

A couple of weeks ago, the drop in the stock market was blamed on the weakness in the services sector. This could create an opportunity for investors looking for short-squeeze plays.

A short squeeze takes place when those selling a stock short scramble to cover their bearish positions on any rise in the stock. This short-covering drives the price of the shares up even more sharply.

Short-squeeze potential is measured by the short-squeeze ratio, which is the number of days it would take for short-sellers to cover their positions. Stockpickr has combed through the publicly traded companies in the services sector and compiled a list of 10 potential short-squeeze plays.

Clear Channel Outdoor Holdings (CCO) has one of the highest short ratios of the service sector group: 44. This outdoor advertising company was recently upgraded by Bear Stearns from peer perform to outperform. Its earnings release is scheduled for Feb. 14. The stock has a price-to-earnings (P/E) ratio of 41 and a P/E-to-growth (PEG) ratio of 2.

Clear Channel shares are owned by Enso Capital Management, a global investment manager that invests in equities around the world. Enso also owns Brookdale Senior Living (BKD), which has a short ratio of 12, Ivanhoe Mines (IVN), with a 5 short ratio, and Inverness Medical Innovations (IMA), with a 9.1 short ratio.

Another stock with a high short ratio is School Specialty (SCHS), with a short ratio of 24. Back in December, this educational products company approved a $50 million share-buyback plan. The company has a P/E of 24 and a PEG of 1.

School Specialty is a stock owned by Dell Computer (DELL) founder Michael Dell through his company MSD Capital. Dell also likes IHOP (IHP), which has a short ratio of 5, Time Warner Telecom (TWTC), with a 12 short ratio, and Dollar Thrifty Automotive (DTG), with a 10 short ratio.

Aaron Rents (RNT) is another company with a high short ratio. This company, which rents and leases electronics and furniture, sports a short ratio of 20.5. In January, the company reported an expected 14% rise in fourth-quarter revenue and a 3.9% revenue increase in same-store sales. The stock has a P/E of 12.5 and a PEG of 1.

Aaron is owned by the Stratton Small-Cap Value Fund, a four-star Morningstar-rated fund that specializes in investing in smaller-capitalization companies. It also owns CommScope (CTV), with a 4.6 short ratio, Anixter International (AXE), with a 9.3 short ratio, and Terex (TEX), with a 1.5 ratio.

To see all 10 stocks, check out the Service Sector Short-Squeeze Stocks at Stockpickr.com.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Dollar Thrifty Automotive to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for the Financial Times and the author of Trade Like a Hedge Fund, Trade Like Warren Buffett and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.

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