BALTIMORE ( Stockpickr) -- With energy prices sitting near highs for most of 2011, energy stocks have proven a solid bet so far this year. While yesterday's selloff officially knocked the S&P 500 down to a loss since the first trading day of January, the energy sector has brought in positive returns of nearly 5%. Take out big-name energy stocks from the S&P, and the difference is even more striking.
Energy plays have long been a good way for investors to hedge their bets against the market. That's because their performance is so heavily predicated on commodity prices, which don't correlate strongly with the stock market. Energy names also tend to pay out respectable dividends -- providing returns to shareholders regardless of market sentiment. So when stocks are looking soft (as they are now), energy stocks can offer sought-after gain potential.
And some energy stocks are offering more gain potential than others right now.
You see, even though the energy sector has been performing at a high level this year, a handful of relatively high-profile energy stocks have had short-sellers piling into them -- creating a prime opportunity for a short squeeze this summer.Related: 5 Technical Setups With Breakout Potential Put simply, 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. Naturally, these 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 five energy sector names that look like prime short-squeeze candidates right now.