Not a Stockpickr member? Join the community today -- for free.SAN FRANCISCO ( TheStreet) -- TheStreet.com's Lauren Tara LaCapra declared Aug. 5 the " Day of the Short Squeeze," referring to the steep rise seen that day in American International Group ( AIG), Fannie Mae ( FNM) and Freddie Mac ( FRE). The recipe for this short squeeze? Simple: "Take a few zombie stocks that are heavily shorted, add a cup of fundamental improvements, a pinch of potentially rosy quarterly results and a dash of speculation, and you've got yourself a short-squeeze mess." But a stock doesn't need to be a "zombie" -- a name bestowed on AIG, Fannie and Freddie due to the high level of government ownership in the companies -- to be a short-squeeze opportunity. A short squeeze takes place when a heavily shorted stock is quickly bought back in by the short-sellers, usually in response to a positive catalyst, driving the stock even higher. In the above example, the catalysts were the "fundamental improvements," the "potentially rosy quarterly results." Thus, a high level of short interest in a stock could indicate that that stock is well-positioned for a short squeeze, should a positive catalyst occur. With that in mind, Stockpickr has reviewed the heavily shorted Nasdaq stocks and compiled a portfolio of those with high short ratios, where the short ratio measures the numbers of days it would take the short-sellers to cover their positions based on recent average daily volume. For example, Nasdaq stock Mobile Mini ( MINI), which provides portable storage products, has a high short ratio of 23.6. This means that it would take almost 24 days for the short-sellers to cover their positions. The company recently reported that earnings fell by more than 14%, in spite of the fact that revenue increased by 17%. The company has eliminated 30% of its workforce since December in order to reduce costs and improve net income. It has $873.3 million in total debt, with $14.8 million in cash.
Mobile Mini is in one of the portfolios that Stockpickr tracks, the Pacific Advisors Small Cap Fund, which is rated three stars by Morningstar and is managed by George Henning. The fund ranks in the top 2% of all the stocks in the category of small blend funds over the last five years. Other stocks in its portfolio include East West Bancorp ( EWBC), with a 4.4 short ratio; EZcorp ( EZPW), with a 4.1 short ratio; and Kirby ( KEX), with a 7.6 ratio. Another heavily shorted Nasdaq stock is Blue Nile ( NILE), with a 10.3 short ratio. The web-based jewelry store, which is the largest online retailer of certified diamonds, recently reported that profits dropped by 11% for the latest quarter, on a 5% reduction in revenue. Blue Nile has $25.1 million in operating cash flow and total debt of $860 million, with $48 million in cash. Blue Nile is owned by the Morgan Stanley Institutional Small Company Fund , which received four stars from Morningstar and is managed by David Cohen. It also owns Greenhill ( GHL), with an 10.1 short ratio; Techne ( TECH), with a 4.7 short ratio; and Eagle Materials ( EXP), which has a fairly high short ratio of 18.1. For more potential short-squeeze opportunities, check out the Nasdaq Short-Squeeze portfolio at Stockpickr. In addition to its weekly short-squeeze portfolio and article, Stockpickr has various resources available to investors seeking information about short squeezes. For example, the Answers forum has fielded dozens of questions related to short squeezes lately. In Answers, Stockpickr members ( sign up here) can ask and respond to each other's questions, and experts such as David Peltier and Scott Rothbort visit regularly to provide additional ideas. -- Written by Fred Fuld in San Francisco. Register for Stockpickr today!