3 Sin Stock Short-Squeeze Opportunities

BALTIMORE (Stockpickr) -- Have you sinned with your stocks recently?

I'm talking, of course, about sin stocks -- stocks of companies involved in "morally questionable" businesses such as alcohol, tobacco and gambling.

Sin stocks are a popular choice for investors because of their performance during tough times. After all, when the economy turns sour, their consumers don't stop buying.

Of course, this isn't the first time I've talked about sin stocks. Back in March, we looked at five sin stocks that looked like potential short squeeze opportunities. Since then, those five stocks have gained an average of 53.41% each, while the broad market has jumped a paltry 1.64%. With that in mind, it makes sense to look at a few new sin stocks that have that same short squeeze potential.

>>Also: High-Yield Tobacco Stocks

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing 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 estimates 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.

Here's a look at three sin stocks that have decent short squeeze potential right now.

>>Also: 3 Stocks That Could Surge on Earnings

First up this week is Lorillard(LO), a $13 billion tobacco stock that's seen share prices rise more than 8% this year in addition to a strong dividend payout. While Lorillard is a large company that's a major player in the cigarette business, short sellers have made big bets on a drop in this stock's share price, driving its short interest ratio up to 11.6.

It's not terribly surprising that short-sellers are staking up against Lorillard . The company generates nearly 92% of its revenues from its Newport brand of mentholated cigarettes, which is facing increased regulation from the FDA over concerns about health effects of smoking minty-flavored cigarettes. Lorillard will be presenting its views to the FDA advisory panel today.

>>Also: Cramer's Top 3 Tobacco Stocks

Even though Lorillard has prepared for all contingencies by developing a nonmenthol version of Newports, most analysts agree that it's unlikely for the FDA to outright ban menthol cigarettes, a $26.2 billion niche that makes up nearly a third of the overall cigarette business.