One of the best ways to find a short-term trade is to look for a stock that has a high short ratio.
Here's why: The higher the short ratio, the more days it'll take short investors to cover their bearish bets should the stock get a jolt of good news. A heavily shorted stock has the potential to soar on any positive catalyst, because so many investors are placing bets against it.
Stockpickr has reviewed the entire list of
New York Stock Exchange
stocks and extracted the
, also called the days-to-cover ratios. These stocks are also screened for
price-to-earnings ratios below 25, P/E-to-growth (PEG) ratios, when available, of less than 2, and market caps in excess of $350 million.
At the top of the list is
( TOC), which has a short ratio of 85. Thomson is an information service provider to the legal, accounting, health care, financial and scientific markets. The company recently reported a 118% year-over-year increase in quarterly earnings on an 11.1% increase in revenue. The stock has a P/E of 19 and a PEG of 1.6, and it pays a yield of 2.4%.
Thomson appears in the
, a Stockpickr portfolio that also lists book publisher
John Wiley & Sons
. Wiley is the publisher of numerous financial and investment books, including the
how-to series. The stock has a P/E of 23 and a short ratio of 2.8. It also has a yield of 1.1%.
Another Book Stocks portfolio company is
( MHP), which sports a P/E of 17, a PEG of 1.3 and a yield of 1.6%. In addition to publishing, the company also owns the credit rating and information service Standard & Poor's.
Second highest on the list of short squeeze stocks is
Coca-Cola Hellenic Bottling
, which has a short ratio of 87. This Athens, Greece-based company, which makes and distributes Coca-Cola products throughout Europe and Nigeria, recently announced a raised 2007 earnings target, a 17% increase in second-quarter earnings and plans to increase its dividend. The stock has a P/E of 22 and a small yield of 0.9%.
Coca-Cola Hellenic is part of the
, a Stockpickr portfolio that lists nonalcoholic-beverage stocks that generate a yield, such as
, which offers a 2.5% yield, a P/E of 24 and a PEG of 2.2.
Another stock in the Soft Drinks portfolio is
, which offers a yield of 2.2%. Pepsi, a favorite of Jim Cramer's, has a P/E of 19 and a PEG of 1.8.
Another high-short-ratio stock is
, which has a short ratio of 40. This California-based company makes and markets building and construction products.
The stock was recently downgraded by Matrix Research from buy to hold, probably one of the reasons for the large number of short-sellers -- that and the 10% drop in quarterly earnings. Simpson has a P/E of 18, a PEG of 1.2 and a yield of 1.2%.
Simpson is in the portfolio of
(RYPRX), a four-star Morningstar-rated fund that has generated an average annual return of 18% for the last three years. The Royce fund also owns a few other high-short-ratio stocks, including
, with a 17 short ratio, and
, with a 12.5 short ratio.
To see the entire list, check out the
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for
The Financial Times
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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