Top Short-Squeeze Plays With Low PEGs

Updated from 8:59 a.m. EDT

One way to make a fast profit on a stock is through a short-squeeze play. A short squeeze takes place when a stock's price rises on good news and the stock's short-sellers scramble to cover their bearish positions. This short-covering, in turn, can drive the price of the stock even higher.

The ratio for measuring a short-squeeze play is the short ratio, which represents the number of days it would take a stock's short-sellers to cover their positions, based on the stock's recent trading volume.

Stockpickr has compiled the Top Short-Squeeze Plays With Low PEGs portfolio, a list of stocks with high short interest and price-earnings-to-growth ratios of 1.8 or lower.

One of the stocks on the list is Portfolio Recovery Associates(PRAA Quote), which purchases and manages portfolios of defaulted consumer receivables. It has a short ratio of 54.3. The company recently announced that it will pay $24.6 million for MuniServices, a company that specializes in revenue enhancement for government clients. The stock has a P/E of 13 and a PEG of 0.87.

Portfolio Recovery is owned by Second Curve Capital, an $800 million hedge fund founded in 2000 by Tom Brown. The fund has had a 20% annualized return after fees since inception. Brown also likes Tennessee Commerce Bancorp(TNCC Quote), with a 7.8 short ratio; Capital One Financial(COF Quote), with a short ratio of 6.6; and RenaissanceRe Holdings(RNR Quote), with a 3.1 ratio.

Another stock with a high short ratio is CoStar Group(CSGP Quote), with a ratio of 45.2. This commercial real estate information services company reported that its first-quarter net income increased 178% vs. the same period last year on a 16.6% increase in revenues. The stock has a P/E of 45 and a PEG of 1.36.