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TheStreet Open House

5 Big Stocks Ready to Get Squeezed Higher

Stocks in this article: DLRPCLOREGDEI

BALTIMORE ( Stockpickr) -- With real estate prices starting to heat up again, investors had better start paying attention to real estate investment trusts, better known as REITs.

REITs have become retail investors' go-to instrument for getting exposure to real estate prices over the last few years, and while that exposure wasn't exactly wanted after the real estate bubble burst, it's becoming a whole lot more attractive now that most real estate measures have bottomed and turned higher. Just as important, REITs are one of the few equity investments that still has a low correlation with the S&P 500; that means that investors hoping to escape exposure to "the market" can add REITs to their arsenals.

But by and large they're not. In fact, investors still hate REITs right now -- and they're betting against them en masse.

>>5 Stocks Poised to Pop on Bullish Earnings

Real estate investment trusts are still among the most heavily shorted classes of investments as I write, a fact that's especially surprising given the income characteristics of REITs in this toxic, low-rate environment. REITs are obligated to pay out most of their earnings in the form of dividends, a legal structure that actually makes many of them better income-generation instruments than real estate instruments (more on that later).

So today, we're focusing on five big REIT names that could be primed for a short squeeze. 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.

>>Why I Like Homebuilders -- But Hate the ETFs

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. And my research shows that buying the biggest, most heavily-shorted stocks has historically led to superior returns.

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

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