The recent drop in real estate and mortgage stocks pulled down a lot of other high-quality stocks, creating some potential short-squeeze trading opportunities. A short squeeze takes place when the short-sellers of a stock scramble to cover their bearish positions when the stock moves sharply upward.

A stock's short position is measured by the short-squeeze ratio, which represents the number of days it would take for the short-sellers to cover their positions based on the stock's recent daily trading volume.

Stockpickr has put together a list of the top 10 short squeeze stocks that trade on the New York Stock Exchange. All of these stock price/earnings-to-growth (PEG) ratios of 3 or less and short ratios greater than 17.

One heavily shorted NYSE stock is Kingsway Financial Services ( KFS), a Canada-based property and casualty insurance company with a short ratio of 31.2. The company just announced a plan to buy back up to 2.8 million shares of stock on the Toronto Stock Exchange. During the last 12 months, the company bought back 563,600 shares. KFS has a price/earnings (P/E) ratio of 9.2, a PEG ratio of 1.1 and a yield of 1.7%.

Kingsway stock is owned by Abingdon Capital Management, a McLean, Va.-based money manager that specializes in looking for stocks for which there is a large difference between price and value. Abingdon also owns Fidelity National Information Services ( FIS), which has a short ratio of 0.7, NRG Energy ( NRG), with a 6.8 short ratio, and Supervalu ( SVU), which has a short ratio of 2.5.

Another high-short-ratio stock on the Big Board is aerospace and defense contractor Heico ( HEI). The stock was downgraded in October by Suntrust from buy to neutral. Heico has a P/E of 35, a PEG ratio of 1.8 and a yield of 0.2%.

Heico shows up in the MSN Money 40 Best Fundamentals portfolio at Stockpickr that lists the top 40 stocks according to MSN Money that have the best fundamentals. Other stocks in the portfolio are AllianceBernstein Holding ( AB), which has a 1.2 short ratio, ADC Telecom ( ADCT), with a 3.1 short ratio, and Agco ( AG), with a 4 short ratio.

HealthSouth ( HLS) is another highly shorted NYSE stock, with a short ratio of 29.9. The company reported a $3.13 per share profit versus a loss of $1.04 last year. The stock has a P/E of 2.7 and a PEG ratio of 0.8.

HealthSouth was in the Barron's Insider Purchases 8-25-07 portfolio at Stockpickr. Other stocks in this portfolio include Enterprise Products Partners ( EPD), with a short ratio of 6.7, and Lazard ( LAZ), with a short ratio of 5.

For more potential short-squeeze stocks with low PEG ratios, check out the Top 10 NYSE Short-Squeeze Stocks at Stockpickr.com. And for more ideas, check out the Top S&P 500 Short-Squeeze Stocks.
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 and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.

If you liked this article you might like

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup

This Week's 'Barron's' Roundup