Updated from 7:09 a.m. EDT

With many market pundits declaring a market bottom, it may prove profitable to take a look at heavily shorted stocks that have the potential to soar on positive news.

A short squeeze occurs when positive news sends short-sellers, or those betting against the stock, to scramble to cover their bearish positions. This short-covering, or buying, causes the stock to spike even higher.

The primary metric for the short squeeze is the short ratio, which represents the number of days it would take a stock's short-sellers to cover their short positions, based on the stock's average daily trading volume.

Stockpickr has compiled Top Big Board Short-Squeeze Plays, a list of the heavily shorted stocks that trade on the New York Stock Exchange and have the greatest potential to rise based on their short ratios.

One of the NYSE stocks with the highest short ratios is Alleghany ( Y), a property and casualty insurance company with a short ratio of 30.4. The stock has a trailing price-to-earnings (P/E) ratio of 10.6.

Alleghany appears in the portfolio of the Royce Total Return Institutional Fund, managed by Charles Royce. With an objective of long-term growth of capital and current income, the fund also holds AllianceBernstein ( AB), with a short ratio of 1; Reliance Steel & Aluminum ( RS), with a 2.4 short ratio; and Leucadia National ( LUK), with a 6.7 short ratio.

Another NYSE stock with a high short ratio is GenCorp ( GY), an aerospace and defense manufacturer with a short ratio of 32. The company last week posted first-quarter results that showed a sharp drop in profits but a 16% rise in sales over last year. The stock has a trailing P/E of 13.8.

GenCorp stock is owned by Steel Partners, a San Francisco-based hedge fund managed by Warren Lichtenstein. The fund also owns shares of Rowan ( RDC), which has a 3.8 short ratio; Brinks ( BCO), which has a 4 short ratio; and Ikon Office Solutions ( IKN), with a short ratio of 8.1.

Marine Products ( MPX) is another Big Board stock with a high short ratio. This manufacturer of fiberglass powerboats has a short ratio of 36.5. In January, the company approved the buyback of an additional 3 million shares of its common stock. The stock has a forward P/E of 14.5, a P/E-to-growth ratio of 2.4 and a yield of 3.1%.

Marine Products shows up in the Stockpickr portfolio called Top Dividend Increasers for the Week Ending Jan. 26. The portfolio also includes Home Bancshares ( HOMB), with a short ratio of 26.8, and Donaldson ( DCI), with a short ratio of 7.

For more heavily shorted stocks, check out the Top Big Board Short-Squeeze Plays at Stockpickr.com.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Gen Corp and Marine Products to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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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