NEW YORK (Stockpickr) -- As real estate begins to recover across the country, a prime short-squeeze opportunity is emerging for investors who aren't afraid of buying up shares of beleaguered real estate stocks.
Real estate investment trusts, homebuilders, resort chains and other companies with huge real estate holdings saw their shares fall in the wake of 2008's property bubble as one of their biggest balance sheet items shrank in value due to declining market conditions.
But as the world credit markets release themselves and property-buying picks back up, real estate markets are beginning to recover across much of the country. We're far from a complete recovery to be sure, but we're also far from where many short-sellers saw real-estate-heavy companies under a different economic environment.
As those shorts begin to cover and get squeezed, investors who are willing to go long could be ready to sweep up the gains. A short squeeze -- the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket -- is just the catalyst these stocks need right now.
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.
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 rising analyst expectations.
First up on this week's list is
, the hotel chain that owns brands from Ritz-Carlton to Courtyard.
Marriott is unique in that, contrary to what many believe, it hasn't been nearly as affected by declining real estate as its competitors. While the company does own many of its hotels, the majority are owned by clients who sign long-term management contracts with Marriott.
That's not to say real estate hasn't affected the company. Because hotel owners are at the top of Marriott's revenue stream, contracting property values have left many in a precarious position. Coupled with a global travel slowdown, times have been tough for the company, pushing its short ratio to 10.67. But things are beginning to look up. As property values increase in key destinations, business and vacation travel are an endemic -- and welcome -- consequence.
One fund that's surely hoping to see increasing real estate values translate to hotel rooms is the
(TRREX), a $2 billion fund managed by David Lee. Among the fund's other holdings are the
Simon Property Group
Camden Property Trust
took its knocks back in 2008, falling 29% on the year and sporting a short ratio of 21.79.
But that decline has been mitigated in 2009 by a 22% climb year-to-date, an increase that's keeping current investors satisfied but still presents a value opportunity for those who have yet to take a stake.
The $2.73 billion trust owns 586,000 acres of Northwest Florida property, nearly 70% of which is within 15 miles of the coast of the Gulf of Mexico. That makes St. Joe's land, the majority of which was purchased before 1940 for a comparative pittance today, an asset that has appreciated immensely, regardless of the burst of the real estate bubble.
While Florida continues to be one of the worst-affected states in the aftermath of the real estate devaluations that started in 2007 and 2008, the western coastal part of the state is already beginning to recover. And right now is looking like a prime time for development partners who are hoping to get in on a favorable deal before prices begin to resurge. Those facts should have St. Joe appreciating over the course of the next year or so.
A big believer in St. Joe is the
(JSVAX), which counts the stock as its largest holding, comprising 6.22% of the $3.9 billion portfolio. Included in the other 62 stock holdings are
Bank of America
caught Stockpickr's attention just over a month ago as one of the companies that actually managed to
payouts to shareholders.
Now, with a short ratio currently ringing in at 13.07, the company is popping up on our real estate radar.
Digital Realty focuses on the technology niche, buying properties data centers in such tech-centric places as Silicon Valley and Northern Virginia. With cash in hand, the company has taken advantage of a soft real estate market to purchase additional income-generating facilities. And with industry insiders clamoring about a shortage of server space, the decision to grow its asset base could soon prove to be a prescient one for Digital Realty.
(CGMRX) holds Morningstar's coveted five-star rating, and holds DLR among its concentrated portfolio of real estate stocks. The fund also holds shares of
LaSalle Hotel Properties
Annaly Capital Management
For the rest of this week's short-squeeze opportunities, including
, check out the
And to find short-squeeze plays of your own, be sure to check out the
community for insights and investment ideas.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, 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.