6 Heavily Shorted Stocks That Could Explode

WINDERMERE, Fla. (Stockpickr) -- If you want to see how powerful a short-squeeze can be, then take a look at the chart for Travelzoo(TZOO) over the last two months. Shares of the global Internet media player soared from a low of $36.16 a share to a recent high of $103.80 before settling back down to current levels of around $85. This is one heck of a move in a very short timeframe, and it probably would have never happened had the stock not been so heavily shorted.

As of March 31, the current short interest as a percentage of the float for Travelzoo is 35.2%. That's a huge short interest for a stock that only has 5.5 million shares in its tradable float. This ridiculously small float is another major reason that Travelzoo skyrocketed. Once the momentum buyers stepped in, it became very easy to squeeze the shorts. They simply overwhelmed the bears with continuous buy orders that increased in volume as the stock rose.

One thing about a short squeeze that you don't hear about often is that if there aren't fundamentals to support the move, the stock will eventually round-trip and give back all the gains. Understanding this will help you in deciding if you should hold a heavily shorted stock for longer than just a trade.

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I am not sure which one Travelzoo is just yet, because we have seen this stock round-trip many times in the past. But Travelzoo did report revenue of $37 million on 37 cents a share in profits during the most recent quarter, which was a jump of 30% from a year ago.

I will save the debate on Travelzoo for another time. I do think it's always prudent take some profits in a stock that has run up that much in just two months. What I would rather do now is look for the next Travelzoo that could produce huge profits off the demise of aggressive bears caught short the wrong stock.

With this in mind, let's take a look at a number of heavily shorted stocks that could easily see a massive short squeeze like Travelzoo's.