BALTIMORE ( Stockpickr) -- While the investment tone for 2011 has yet to be set (and likely wont be for some time), the New Year is going to provide a clean slate for a handful of companies that have been targeted by short-sellers this year.
And you can bet that phenomenon will translate into ample opportunities for investors looking to add a bit of extra risk to their portfolios and profit from a short squeeze.
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.
Related: Stocks With Big Insider SellingTo find these plays, I relegated my search to heavily shorted stocks that trade for a paltry premium to the assets on their books (or in some cases, a discount), which have also suffered a large price drop in 2010. From there, I limited it to the three plays with the highest potential for a rebound in the coming year. To be sure, these three plays aren't without their blemishes -- there's a reason that these stocks are being heavily shorted. But for investors looking for exposure to a speculative play with a beefier risk/reward tradeoff, these could be powerful upside plays for the coming year. With that, here's a look at three oversold stocks that have short squeeze potential in the new year.