Squeezing the Shorts: Late Earnings Plays - TheStreet

Squeezing the Shorts: Late Earnings Plays

These heavily shorted stocks could surge higher on any positive catalyst.
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By Jonas Elmerraji



) -- For investors who seek out short-squeeze opportunities, there's no time as important as earnings season. Earnings are one of the biggest catalysts a stock has to move higher, and good earnings can be just what investors need to start a squeeze. That's especially true at the tail end of earnings season as less-visible companies release their quarterly results to investors.

With smaller trading volumes in many of these stocks, the squeeze potential is magnified in a big way.

A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors. As more and more of the short investors buy shares to cover their positions, share prices skyrocket. Almost anything can trigger a short squeeze, including trumping earnings expectations, winning a lawsuit, unveiling a new product and even announcing a management change.

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.

With this in mind, Stockpickr has created a portfolio of stocks this week with high short interest ratios and the catalysts to trigger a squeeze. Here's

a look at this week's potential plays


On Monday,

Sears Holdings


announced that management would be reporting its third-quarter 2009 results on Nov. 19. The company, which operates 3,918 Sears and Kmart stores in the U.S. and Canada, has taken a lot of investor scrutiny of late, with a short-interest ratio of 15.34.

This earnings release is a significant one. As one of the oldest and biggest retailers in the country, Sears acts as a sort of bellwether for consumers' retail appetites. With a focus on home products, the company's product mix has been one of its biggest challenges in the current economic environment, but Sears' brand positioning remains incredibly strong in spite of that fact. With names like Kenmore, Lands' End and Craftsman, Sears owns an incredibly valuable product chain. And with its Kmart acquisition, Sears stands to see those brands penetrate into a new market.

Currently, analysts are expecting a loss of $1.07 for the quarter, compared with a loss of 79 cents last quarter and profitability the quarter before that. Low analyst expectations could be favorable for investors hoping to squeeze out the shorts.


(FAIRX) investors certainly hope so. The fund, which owns 10.28% of Sears' outstanding shares, holds a five-star rating from Morningstar and has returned 75.2% since January. Fairholme also owns large stakes in


(PFE) - Get Report

, with a short ratio of 5.8, and


(BA) - Get Report

, with a short ratio of 3.8.

Lawncare manufacturer


(TTC) - Get Report

develops and builds professional and residential irrigation systems, mowers and other landscaping equipment. Unsurprisingly, the company's stock has found itself on the wrong side of short sellers as investors shy away from capital improvement stocks. Currently, Toro's short interest ratio sits at 22.69.

But with still-strong margins and a healthy balance sheet, this stock looks among the best-positioned for a short squeeze when it reports earnings on Dec. 8. Analysts currently expect a loss of 6 cents per share despite the fact that Toro hasn't had a quarter finish in the red in years. Couple that with the company's still-strong guidance for the fiscal year, and the grass is starting to look pretty green for this lawn stock.

For the rest of this week's short-squeeze opportunities, including

Thompson Reuters

(TRI) - Get Report



(CIA) - Get Report

, check out the

Late Earnings Short Squeeze portfolio

at Stockpickr.

And to find short-squeeze plays of your own, be sure to check out the

Stockpickr Answers

community for insights and investment ideas.

-- Written by Jonas Elmerraji in Baltimore.

Stockpickr is a wholly owned subsidiary of TheStreet.com.

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.