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TheStreet Open House

5 Contrarian Blue-Chip Stocks That Could Pop in 2012


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It's a bit of a misnomer to call Groupon (GRPN) a blue-chip. The firm only went public in November, taking advantage of the hype-driven social media market to boost share prices at the end of last year. And frankly, this stock is fundamentally worse than the rest of the names I'm telling you about today.

Nonetheless, the combination of a $12.7 billion market capitalization, a short interest ratio of 11.3 and some structural factors in shares makes this stock a potential short squeeze.

Groupon has been a controversial stock for the last few months as investors debate what the firm's real financial prospects are. But beyond the traditional fundamental valuation for Groupon is a short squeeze story in the making.

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That's because Groupon has a relatively low float -- the lowest float for an internet stock in a decade, in fact. That low float means that shares are harder to borrow, a factor that makes carrying costs of shorting the stock extremely high. Put simply, shorts need to see Groupon move dramatically lower in the short-term to avoid taking a loss on their trades.

For that reason, if Groupon were to get some buying pressure in 2012 and move higher (a scenario that's easier to accomplish because of that float), it'd be likely to spur shorts to take losses and buy to cover to avoid bigger losses.

For investors who are comfortable trading this stock tactically, it makes sense to buy Groupon when shares start to show some upward momentum.

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