Updated from 6:56 a.m. EST

A couple of weeks ago, the drop in the stock market was blamed on the service sector stocks. Then last week, when the market fell, the manufacturing stocks were blamed.

Stockpickr has pored over the disliked sector and compiled Manufacturing Sector Short-Squeeze Plays, a list of industrial goods stocks with short ratios greater than 10, and therefore the highest potential for a short squeeze.

A short squeeze takes place when a stock's short-sellers scramble to cover their bearish positions after the stock starts to move higher on positive news. This buying, or short-covering, causes the share price to spike even higher.

One manufacturing stock with a very high short ratio is Simpson Manufacturing ( SSD), at 29.4. The building products manufacturer last week declared a cash dividend of 10 cents a share for the quarter, giving the stock a yield of 1.7%. It has a trailing price-to-earnings (P/E) ratio of 18.5 and a P/E-to-growth (PEG) ratio of 1.2.

Simpson shares are owned by Pennsylvania Mutual Fund, which has generated a five-year average annual return of 16.6%. Other stocks that the fund holds include Woodward Governor ( WGOV), with a short ratio of 9.4; Lincoln Electric Holdings ( LECO), with a 4.2 short ratio; and Oil States International ( OIS), with a short ratio of 4.1.

Another heavily shorted manufacturer is Heico ( HEI), which has a short ratio of 14.5. The Florida-based manufacturer of aerospace, defense and electronic products has scheduled its regular quarterly conference call for Feb. 28. Heico has a P/E of 32, a PEG of 1.3 and pays a small dividend of 0.2%.

Heico appears in the Top 10 NYSE Short-Squeeze Stocks, a related Stockpickr portfolio from November that lists the stocks on the New York Stock Exchange with the highest short ratios. Other stocks in the portfolio include Piedmont Natural Gas ( PNY), now with a short ratio of 18.5; Primedia ( PRM), with a short ratio of 30; and Sealy ( ZZ), a company that has a 16.6 short ratio as well as a great stock symbol.

Franklin Electric ( FELE) also has a high short ratio, at 18.6. Shares of this Indiana-based manufacturer of groundwater systems, fuel pumps, submersible pumps and motors trade around their 52-week low. The stock has a P/E of 20, a PEG of 1.5, and it pays a yield of 1.5%.

Franklin is part of the exchange-traded fund PowerShares Water Resources. Other stocks in this ETF include Aecom Technology ( ACM), which has a short ratio of 5.2; ITT Corp. ( ITT), with a 2.8 short ratio; and URS Corp. ( URS), with a 1.8 short ratio.

For more industrial goods stocks with short ratios above 10, check out the Manufacturing Sector Short-Squeeze Plays at Stockpickr.com.
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.

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