5 NYSE Short-Squeeze Opportunities for 2010BALTIMORE (Stockpickr) -- Main Street often thinks of the market as moving in one direction: up. So when the market tumbles, retail investors often think that everyone is sharing in losses. But that's not always the case.
Investors can bet in both directions of the market, going "long" when they believe a stock is worth buying and going "short" when they think shares are headed lower. But just as bulls can over-buy shares of a stock, bears can over-short them. When that happens, you've got the potential for a profitable short squeeze on your hands.
A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing short-sellers to cover their positions -- and 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 divides shares short by average daily trading volume in order to get a ballpark estimate of 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.
Here's a look at
that have the potential to see a short squeeze in the mid-term.
is a different kind of "garbage stock," but that hasn't kept short sellers from trashing it. The aptly named company is the largest waste management firm in the U.S., serving 20 million customers and collecting more than 150 million tons of waste each year.
Big bets are being made against shares of this stock right now; with a short ratio of 17.7, it would take more than three weeks of trading at current levels for short-sellers to cover their positions.
While the trash business isn't particularly exciting, it is recession-resistant and profitable -- Waste Management's scale provides the firm with above-average margins and a narrow competitive advantage. Those two factors contribute to the company's 3.5% dividend yield, one of the most appealing attributes about this stock. As Waste Management continues to deliver shareholder value, short-sellers are likely to find fewer reasons to keep their positions open. An uptrend since June should help shake them out in the near-term.
One of Waste Management's biggest institutional investors is the
(AMECX), which holds Morningstar's four-star rating. Other holdings include
The pressure has been mounting lately for Canada's biggest bank,
Royal Bank of Canada
. With slow financial growth in Canada and exposure to less enviable portions of the U.S. credit market, short-sellers are taking positions against this firm -- but they could be misjudging its financial health. At present, the stock sports a short ratio of 13.6.
While concerns over RBC's business are justified, they may well be overblown. The bank's sheer size and presence in Canada gives it cheap and easy access to an enormous deposit base -- one that should help fuel margin growth in the coming quarters. Likewise, RBC's wealth management, insurance, and investment arms should help push up profitability and offset credit losses.
While RBC's exposure to certain markets (such as U.S. commercial real estate) is troubling, it doesn't likely represent enough of a threat to debase this firm's positive attributes. That's the hope of investors in the
(GLFIX), which holds more than 30,000 shares of the bank. The fund also owns stakes in
Strong performance from
hasn't shaken the stigma that the hospitality industry is still under siege. But that could soon change as this stock continues to impress analysts with incremental increases in RevPAR (revenue per available room) and little exposure to the residential business. Despite a run-up of 34.5% since the company's IPO last year, the company currently has a short ratio of 13.8.
With a rebound in the higher-end hotel business, Hyatt has been one of the biggest beneficiaries. Quite frankly, this firm's balance sheet isn't comparable to most peers because Hyatt owns and leases the vast majority of the properties that fly under its flag. While that means a higher degree of leverage, and increased risk when times are tough, it also means bigger profits when times are good. That's what investors are starting to see now.
One of those investors is the
(BPTRX), which owns 2.5 million shares of Hyatt stock. Other fund holdings include
For the rest of this week's short-squeeze opportunities, including
, check out the at
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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.