BALITMORE (Stockpickr) -- Last week's bearish market was a wake-up call for investors who've been operating under the misapprehension that stocks can only move higher in 2010. But now, with broad-based indexes markedly lower and many fund managers calling the market oversold, the field is set to squeeze the shorts.
Why is now a compelling time to short for short-squeeze plays? After a bearish run like we saw last week, scores of investors piled into the short side of stocks, thinking that an even bigger breakdown was in store. But as the market begins to consolidate, the potential for a bullish turn in the next week or two should put additional pressure on the shorts. Stocks with well-known brands in their portfolios could make out best in the fallout as investors pile back into companies with consumer sentiment on their side.
Each week, Stockpickr creates a portfolio of stocks with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at
, which focus on stocks with well-known consumer brand names.
One of this week's most surprising short plays is
Chipotle Mexican Grill
The Denver-based Mexican food chain, which operates more than 800 stores in the U.S., recently expanded to Canada with its first Toronto store in 2008. Chipotle has designs on continuing its international presence with a new London restaurant location in 2010.
Chipotle has differentiated itself in the fast food market by offering fresh ingredients, hormone-free dairy and humanely raised meats. As a result, the chain has managed to plant itself on the high end of the fast food market, with the average check ringing in just shy of $10. But while other high-end brands suffered in 2008 and early 2009, Chipotle managed to build on its fast growth and actually record comparable sales growth as the other restaurants tightened their belts. With a short interest ratio of 13.9 at present, it would take short-sellers nearly three weeks to cover their positions at current volume levels -- a good sign for those who are currently long the stock.
Among that list of CMG longs is the
(WGGFX), a $308 million fund that invests in socially responsible companies. The company also holds stakes in
Capstone Turbine Corporation
in its concentrated portfolio.
Products from computer peripheral maker
may be an easy find in your local electronics retailer, but that doesn't mean there isn't heavy shorting pressure against this stock. The company currently has a short ratio of 26.98.
Logitech is one of the best in the peripheral breed, known for its innovative and competitive lines of speakers, webcams, keyboards and mice, and gaming controllers. The company has a low-cost business structure, one that became even lower as Logitech expanded operating margins to 10% in last Thursday's third-quarter earnings release. Strong competition is the biggest challenge the company faces right now, with the big name and no-name competitors monopolizing the top and bottom tiers of the market.
Logitech's biggest growth prospect looks to be a bump in 2010 computer sales as consumers wean themselves back into bigger-ticket spending. An upgrade by Citigroup yesterday is enough of a short-term catalyst to catch our attention right now.
Language learning software maker
may have a market cap of only $348 million, but with one of the first post-crash IPOs back in April 2009, the company has been in investors' headlights for the last year or so. That doesn't mean that all of the sentiment has been positive; the company currently has a short ratio of 35.7.
High operating costs two quarters ago caused a sizable loss for Rosetta Stone's normally high-margin business, scaring some investors away. But that concern should have been short-lived. Rosetta staged a comeback to nearly double-digit net margins last quarter.
Rosetta Stone has one of the most powerful brand names in the language software business thanks to a highly successful series of direct marketing television commercials and a strong kiosk presence in upscale malls. That brand recognition has helped consumers get over a steep price tag for the language software. Fourth-quarter numbers for fiscal 2009 expected within the next month could catalyze a squeeze to higher territory.
For the rest of this week's short-squeeze opportunities, including
Briggs & Stratton
Tootsie Roll Industries
, check out the
And to find short-squeeze plays of your own, be sure to check out the
community for insights and investment ideas.
-- Written by Jonas Elmerraji in Baltimore.
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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.