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TheStreet Open House

5 Shorted Bank Stocks Set to Climb

WINDERMERE, Fla. ( Stockpickr) -- Legendary investor Warren Buffett has once again jumped in to potentially save Wall Street from another banking crisis.

Buffett's Berkshire Hathaway (BRK.A) has announced today that they will invest $5 billion in Bank of America (BAC) to help the bank deal with losses related to subprime mortgages. This move is seen many market players as a vote of confidence in the battered banking giant. It's also similar to what Buffett did with Goldman Sachs Group (GS) back in September 2008 during the credit crisis when he took a $5 billion stake in the investment bank. Keep in mind that after Buffett stepped into Goldman, the stock fell 58%.

Berkshire has agreed to buy 50,000 preferred shares that will pay a 6% annual dividend. Bank of America has the option to buy back the shares at any time for a 5% premium. Bank of America shares were initially up over 20% as the stock printed a daily high this morning at $8.80 a share. Since that opening pop, the stock has now pulled back to below $8 a share.

Related: 5 Bank Dividend Stocks Ripe After the Pullback

This major move by Buffett could be a signal that value investors are finally starting to see big opportunity in the U.S. banking sector. It could also easily start a big trend change in investor sentiment towards the battered banking stocks from bearish to bullish. If that trend change does indeed occur, then it's time for traders to start hunting the beaten up banking sector for heavily shorted bank stocks.

Heavily shorted bank stocks could see large spikes higher if the value players jump into the sector in the coming days or weeks because of Buffett's move. All the market has to do is perceive that Buffett's BAC investment is a bottom for the bank stocks. Then the bears that're heavily short the sector will start to cover their positions and buy back some of the most beaten down bank names.

Here's a look at some heavily shorted bank stocks that could be ripe for large moves higher soon.

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