BALTIMORE ( Stockpickr) -- You don't have to be a fashionista to see the benefits of owning apparel stocks.
Even though clothing and apparel stocks tend to have much more exposure to consumer whims than most consumer cyclicals, the flip side of that coin is the fact that apparel investments can outperform the market significantly when consumer spending ramps higher. That's especially true around the holidays, when clothing tops many Americans' gift lists. (Last year, for example, the apparel industry saw its holiday season sales hike nearly 10% higher.)
But that potential for volatility puts a big target on the backs of apparel manufacturers and retailers -- and that can create a prime opportunity for investors to profit from a short squeeze.
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In case you're not familiar, a short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors. As more and more of the short investors buy shares to cover their positions, share prices skyrocket. Almost anything can trigger a short squeeze, including trumping earnings expectations, winning a lawsuit, unveiling a new product and even announcing a management change.
One of the best indicators of just how high a short-squeezed stock could go is the short-interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of 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 a handful of
apparel stocks with short-squeeze potential in 2012