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3 Earnings Short-Squeeze Plays

These heavily shorted stocks, including Baidu and Panera Bread, could be in for a squeeze if their upcoming earnings reports please Wall Street.

WINDERMERE, Florida (Stockpickr) -- Earnings season on Wall Street is now upon us. We've already seen two big reports out of the tech sector - Google (GOOG) - Get Alphabet Inc. Class C Report last week and Apple (AAPL) - Get Apple Inc. Report on Monday. Both of these companies had one major thing in common when they reported earnings, and that was massive volatility in their stock prices.

Shares of Google traded up more than 50 points after the search king

reported rosy results

that Wall Street greeted with a buying frenzy. Before Google's report, the stock was trading at around $540 a share. Following the report, shares of Google soared to its current level of well over $600 a share, closing on Wednesday at $607.98. That's a massive run in a very short order.

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You can bet that a lot of that run was due to short covering in Google. Prior to Google's earnings release, the short interest in the stock had risen 28% from 4.2 million shares sold short to 5.4 million shares as of the most recent reporting period on Sept. 30.

Apple, on the other hand, also

reported strong numbers

, but its guidance was a bit tepid, resulting in a nice selloff in the stock by over 17 points from $317 to around $300 a share. The selloff was actually worse than that if you included the after-hours action, which had pushed Apple below $300 briefly.

Since that selloff, Apple has already rebounded to its Wednesday close of $310.53, and I think in no time the stock will be knocking on the door of its pre-earnings release level of $317.

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I think these volatile moves in Google and Apple show that there are a lot of shorts lurking in the markets. If the shorts are as active as I believe they are, then I think it's time to look at some stocks set to report earnings soon that could experience short-squeeze rallies.

A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes happen when bears who've sold the stock short are forced to cover their position on a stock as it rises. Short sellers will cover their positions to avoid losses further losses.

Here 's a look at several stocks that could

TheStreet Recommends

experience a big short squeeze when they report earnings

.

First up for a short-squeeze play on earnings is

Baidu.com

(BIDU) - Get Baidu Inc. Report

, a Chinese-language Internet search provider, which is set to report earnings on Oct.21 after the market close.

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Wall Street analysts are looking for Baidu to post third-quarter revenue of $324.4 million to $333.33 million. If Baidu can come in near the top end of the range and issue guidance that Wall Street likes, then the stock should see a very big short squeeze.

The short interest for Baidu has risen by more than 14.1%, from 9.5 million shares to 10.9 million shares sold short, as of Sept. 30. That is a pretty sizable increase that could set off a big short-squeeze rally in Baidu that pushes the stock well above its recent highs of $107 a share.

If you think Baidu can beat earnings and guide higher, then you might want to play the stock prior to earnings by buying call options that will limit the amount of capital you have at risk. If you think the stock is going to sell off like Apple did and then rebound, wait for the weakness and buy the pullback. Either way, I think the odds of a short squeeze are pretty good, even if the bears can push it initially lower like they did with Apple after its release.

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Another potential earnings short-squeeze play could be found in

Priceline.com

(PCLN)

, an online travel company that offers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services.

Wall Street analysts are looking for revenue of $956 million to $997.68 million for the current quarter when Priceline reports on Nov. 8. If Priceline can come in at the high end of that range and issue bullish guidance, then this stock could also see a very big short squeeze.

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Keep in mind that Priceline is no stranger to a massive short squeeze following earnings. During the last reporting period in August, Wall Street liked what Priceline had to say, and the stock gapped up from under $230 a share to close to $290 in one day.

The current short percentage of the float for Priceline as of Sept. 30 stands at 6.4%. With a tradable float of 47 million, that means around 3 million total shares are currently sold short. Remember that as Priceline's earnings report approaches, those numbers are probably changing daily, but we can look at the most recent short numbers to get a good idea if a short squeeze could materialize.

If Wall Street likes what Priceline has to say, then look for the stock to easily take out its most recent highs at around $358 a share. I think there's a good chance this will happen because Priceline is well-known discounter that should be taking market share during this challenging economic environment.

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One final stock that could see a big earnings short squeeze is

Panera Bread

(PNRA)

, which is due to report earnings on Oct. 27. The national bakery-cafe concept, which boasts 1,380 company-owned and franchise-operated bakery-cafe locations in the U.S. and Canada, has been winning big in the market place by offering consumers healthy food at an affordable price.

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For the current quarter, Wall Street analysts are looking for revenue of $365.50 million to $381.90 million. If Panera can come in at the high-end of this range and issue guidance that Wall Street likes, then the stock could easily short squeeze to much higher prices.

As of Sept. 30, the current short percentage of the float for Panera sits at 10%. With a tradable float of only 29 million shares, that means 2.55 million shares are sold short by the bears. If an earnings short squeeze does materialize at Panera, then I think the stock will easily take out its recent highs of around $92 a share. Keep this stock on your trading radar.

To see more potential earnings short squeeze candidates, including

Travelzoo

(TZOO) - Get Travelzoo Report

,

Bucyrus International

(BUCY)

and

Chipotle Mexican Grill

(CMG) - Get Chipotle Mexican Grill, Inc. Report

, check out the

Earnings Short Squeeze Stocks

portfolio on Stockpickr.

At the time of publication, author had no positions in stocks mentioned. Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.