5 Stocks Everyone Hates -- But You Should Love

BALTIMORE (Stockpickr) -- The stocks that everyone else hates could make you rich.

That sounds like an outlandish claim, I know. But as any contrarian investor knows, when sentiment against the most heavily shorted stocks reaches extremes, it's often a good idea to bet against the crowd. And the crowd has been making big bets against a handful of stocks in 2012.

But there's more to it than just that. It's not just an opinion -- the data bear the strategy out as well.

>>5 Stocks to Buy to Be Like Buffett

Taking a look at the last decade, buying heavily shorted large and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year. That's some material outperformance during a decade when decent returns were very hard to come by.

It's worth noting, though, that market cap matters a lot - short sellers tend to be right about smaller names, with micro-caps delivering negative returns when the same strategy was used.

Today, we'll replicate the most lucrative side of this strategy with a look atfive big-name stocks that short sellers are piled into right now.

In case you're not familiar with the term, 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.

>>5 Stocks George Soros Loves Right Now

Naturally, these plays aren't without their blemishes -- there's a reason (economic or otherwise) 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.

Without further ado, here's a look at our list of large-cap short squeeze opportunities.

 

1 2 3 4 5 6 Next › Last »