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5 Stocks Everyone Hates -- But You Should Love

Stocks in this article: JCP LEN UA CMG SWY

Safeway

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Last up is mid-cap grocery chain Safeway (SWY), a stock that's lived up to short sellers' expectations this year, slipping more than 24% since the first trading day in January. But as this stock has slid, more shorts have piled in, ratcheting SWY's short interest ratio to 12. That glut of late-to-the-game short sellers makes this stock a solid short squeeze candidate.

Safeway is one of the best-in-breed stocks in the conventional grocery business. The firm's nearly 1,700 stores are spread across much of the U.S. and Canada, giving the firm plenty of geographic diversification. At the same time, the firm has been a leader in private label brands and so-called "Lifestyle" store upgrades that cater to a higher-end customer. Those two changes should be a big source of margin growth for Safeway, which operates in an industry where margin cushion is paramount.

Like other grocers, Safeway isn't earning massive margins; instead, it slices a slim profit off of each item that it sells. While shorts have been arguing that cost inflation should shove SWY's margins negative, management has proven adept at keeping the firm's earnings positive.

That's also helped to fuel a 4.4% dividend yield that's huge for the grocery industry. Remember, cash is kryptonite for short sellers. With ample balance sheet liquidity for buybacks and dividend payouts, shorts could see their potential profits get eroded if Safeway continues to perform as it has.

To see this week's short squeezes in action, check out the of Large-Cap Short Squeezes portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.

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