Squeezing the Shorts: Retail Stocks

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

BALTIMORE (

TheStreet

) -- Recent rallies off of historic lows. Waning investor confidence. Blue chips not so blue any more. Now more than ever, we're looking at a perfect setup for some potentially profitable short-squeeze plays.

One of the best places to look is retail. Retail stocks have been absolutely decimated in the last year, as consumer spending fizzled in reaction to the recession. But now, with increasing evidence that the economy may be turning around and, more important, with analyst-beating earnings numbers coming out for many companies last quarter, could the bears be wrong in thinking that retail has further to fall?

That's where the short squeeze comes in.

A short squeeze is the buying frenzy that ensues when a heavily shorted company starts to look attractive again to investors. As more and more of the short investors buy shares to cover, share prices skyrocket. Almost anything can trigger a short squeeze: trumping earnings expectations, winning a lawsuit, unveiling a new product -- 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.

This week, Stockpickr has reviewed retail stocks to find those with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at

this week's potential plays

.

While its members have been working out,

Lifetime Fitness

(LTM) - Get Report

has been flexing its financial muscles. Despite a short ratio of 14.2, this gym chain delivered compelling results in the second quarter, beating analyst earnings estimates, reducing member acquisition costs and boasting strong margins.

Continued financial performance should do a good job of weeding out shorts in this stock.

Lifetime is part of the Stockpickr-tracked

Columbia Acorn Fund

, which is rated four stars by Morningstar. Columbia Acorn also owns shares of retailers

Coach

(COH)

, which offers a paltry short ratio of 3.1, and

Urban Outfitters

(URBN) - Get Report

, with a short ratio of 4.3.

Shares of LTM were up 2.03% early in Wednesday's trading session.

VistaPrint

(VPRT)

may be a familiar name if you've ever ordered business cards or custom printed T-shirts online. The Bermuda-based custom printer sees more than 41,000 orders every day but has nonetheless taken heat from short-sellers who see a contracting economy impacting VistaPrint's bottom line. The company's short ratio stands at 11.2.

In the company's last quarter, results crushed analyst expectations, with net income growing by 42%. In addition, Steven Mandel's hedge fund,

Lone Pine Capital

, grew its stake in VistaPrint's shares to 5.6% ownership. Lone Pine also owns shares of

Priceline.com

(PCLN)

and

American Eagle Outfitters

(AEO) - Get Report

.

Shares of VistaPrint were trading 1.84% higher early in Wednesday's trading.

For the rest of our potential short-squeeze opportunities, check out the

Retail Short-Squeeze Plays 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 Balitmore.

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Stockpickr is a wholly owned subsidiary of TheStreet.com.

At the time of publication, author had no positions in any 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.