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Trade 5 Hated Names to Beat the Market

Stocks in this article: JNJHNZETNCPBMCO

Eaton Corporation

Eaton Corporation (ETN) is a bit unique on our list today. The $17 billion power management firm currently boasts a short interest ratio of 10.6, a number that's probably as high as it is because of the firm's pending acquisition of Cooper Industries (CBE) -- many investors are shorting Eaton as half of a merger arbitrage strategy. But it's important to remember that it doesn't matter why a stock is getting shorted. A high short interest ratio alone is enough of a structural reason to cause a short squeeze.

The Cooper acquisition is a big deal for Eaton. The move stands to double ETN's size and create a lot of cost savings in the combined firm. A big part of the reason why ETN is seeing so much shorting comes from the risk premium that's been priced into shares -- with the spread between Eaton's offer price and Cooper's share price higher than investors are used to seeing, there's been a fat profit to be made for arbitrageurs. But those gains could get eroded when Eaton closes the deal later this year.

That could be an important short squeeze catalyst to watch for in the next couple of months.

Campbell Soup Company

There's no company on today's list that investors hate more than Campbell Soup Company (CPB). With a short interest ratio of 14.1, it would take very close to three weeks of buying at current volume levels for shorts to exit their bets against this stock. But all of that animosity may be misguided.

Campbell has been heavily shorted for a while now, thanks in large part to two big targets: a large dividend payout and hefty exposure to input price inflation. But short theses haven't played out as expected for this stock thus far, and they don't look likely to as CPB slowly shores up its finances. Campbell owns a portfolio of brands that includes Pace, Prego, Swanson and Pepperidge Farm in addition to its namesake label. A renewed focus on international sales has helped to break CPB from its revenue flatline, and even though so-so numbers last quarter sparked more shorts piling into shares, Campbell's next earnings call on November 20 could be a good catalyst.

In the meantime, I think that Campbell looks like a good candidate for a dividend hike in the next quarter. That boosted return should help to eat into shorts' potential profit enough to hike their stop losses higher. From a technical standpoint, if Campbell can take out the glut of sellers at $35.50, it should have much higher ground in store.

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