3 Showbiz Stocks That Could Get Short-Squeezed

BALTIMORE (Stockpickr) -- It's hard to make it in showbiz -- even if you're a publicly traded corporation.

While the movie and television business was once a secretive, flashy enterprise well removed from the public eye, it's not hard to become an owner of a major studio any more. Just buy shares of a large entertainment firm like Disney (DIS) or Sony (SNE) and you lay claim to the company's studio business.

The problem, though, is that the majority of the major studios today are owned by conglomerates whose main business isn't the entertainment industry. If you want direct exposure to TV and movies in your portfolio (without adding news channels, theme parks, and jet engine factories to your investment), you're left with companies that are being bet against in a big way by short-sellers.

>>Also: 3 Stocks That Could Benefit From Buybacks

It shouldn't come as a surprise that short-sellers are quick to bet against the TV and movie business. After all, it's a capital-intense industry with cyclical sales and plenty of speculative bets. But that can be attractive to shareholders too -- especially when heavy shorting prompts a squeeze higher.

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing short-sellers to cover their positions -- and share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.

>>Also: 4 Stocks That Could Lead the Way in 2011

Here's a look at a handful of TV and movie stocks that have the potential to see a short squeeze at current levels.

Even though short-sellers are betting against Discovery Communications (DISCA), (DISCK) right now, they can't be happy about it. After all, shares of the TV network have rallied nearly 40% so far in 2010, a tough situation for anyone who's staking their cash on a tumble in Discovery's shares.

But shorts continue to show in force. At present, Discovery's short interest ratio sits at 13.9, a number that suggests it would take nearly three weeks for shorts to cover their positions at current volume levels.

Discovery is no small player in TV. In addition to its namesake Discovery Channel, the company also owns networks channels such as TLC, Animal Planet, HD Theater, and a 50% stake in the upcoming Oprah Winfrey Network. While a weak advertising market had been a major challenge for Discovery in the last few years, the company's earnings this week gave Wall Street the impression that recovery is well under way for the firm's main source of revenues. With a massive content library (which Discovery uses across its channels), and a solid balance sheet, this stock should continue to contradict short sellers as we approach 2011.

Discovery's owners are in good company: Fidelity Contrafund (FCNTX) is one of the firm's biggest institutional shareholders. Other holdings in the five-star rated mutual fund include Apple (AAPL) and Amazon.com (AMZN).

>>Also: 4 Stocks on Fidelity Contrafund's Buy List

1 2 Next › Last »