BALTIMORE (Stockpickr) -- It's no wonder that financial stocks have been some of the most interesting plays of the last several years. In 2008, as overleveraged firms found it harder to operate, the financial sector fell the hardest at the hands of scorned investors who were caught off guard. And in 2009, when financial stocks finally looked cheap, they rallied hard, rewarding those who were willing to stick it out with what was deemed a risky sector.

This week, Stockpickr is focusing its weekly look at short-squeeze opportunities on the leftover financial stocks -- the plays that still have strong bearish sentiment despite a convalescing economy. After all, those stocks reveal some of the best short-squeeze potential right now.

A short squeeze -- the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket -- is just the catalyst these stocks need right now.

Each week, Stockpickr creates a portfolio of stocks with high short interest ratios and the catalysts to trigger a squeeze. Here's a look at this week's potential plays, which focus on financial stocks.

The first month of 2010 wasn't a kind one for Royal Bank of Canada ( RY - Get Report).

The $72 billion bank -- Canada's biggest, in fact -- underperformed the already weak S&P 500 by close to 4% last month. That's on top of a short interest ratio of 36.89, which suggests it would take more than 36 days for short-sellers to close out their sizeable bets against the stock.

But there's more to RBC than shorts and price slides. The company announced better-than-anticipated fourth-quarter 2009 earnings on Dec. 4, raking in income 1.2 billion Canadian Dollars -- a 10% increase from the last quarter of 2008. RBC's size is one of its biggest advantages; the company's capital reserves and customer network give it the wherewithal and ground for significant growth in the coming years.

One fund that's betting on RBC's growth is the Aberdeen Global Financial Services Fund (GLFIX), which owns a sizable stake in the Canadian banking giant. Among GLFIX's other positions are Visa ( V - Get Report) and Goldman Sachs ( GS).

Solid growth numbers haven't kept investment manager BlackRock ( BLK - Get Report) from the scrolls of heavily shorted stocks.

With a short ratio of 11.02, its short interest is several times that of most of its competitors. That's an unusual characteristic for the largest asset manager in the world, with $3.3 trillion under management.

BlackRock's acquisition of Barclays Global Investors, a division of Barclays ( BCS), last year doubled the firm's AUM, a significant accomplishment for a money manager that's been around for only 22 years. The purchase adds significant power to BlackRock's already impressive product lineup, as well as additional exposure to individual investors. Thanks to key strategic relationships with the biggest institutional investors in the world, BlackRock's future should continue to be bright despite short-sellers' hopes.

Besides Barclays, Bank of America ( BAC - Get Report), and PNC ( PNC - Get Report) -- BlackRock's three largest shareholders -- the firm has been an attractive buy for Highfields Capital Management, a Boston-based equity group. Highfields also owns stakes in Motorola ( MOT) and American Express ( AXP).

One of the financial industries that took the biggest shellackings in 2008 was ratings companies. Investors, angry at the thought of analysts' rubber-stamping dubious financial instruments, have decided to fight back, shorting shares of the group as regulatory changes and decreased business have loomed. Credit ratings firm Moody's ( MCO - Get Report), which sports a short ratio of 13.7, has not been immune.

Although the Moody's name may have been tarnished by some inaccurate analysis on mortgage-backed securities issues at the peak of the real estate bubble, the company is well-positioned to recover. As one of a select number of Nationally Recognized Statistical Rating Organizations and with a recognizable brand name, Moody's enjoys high barriers to entry. And as the company expands its reach into regulation-starved emerging markets, it should be able to convert its efforts into cash.

One firm that thinks so is the JHT Financial Services Trust (JEFSX), which holds Morningstar's four-star rating. In addition to Moody's, the fund also owns shares of Wells Fargo ( WFC) and Dun & Bradstreet ( DNB).

For the rest of this week's short-squeeze opportunities, including Thompson Reuters ( TRI) and CNA Financial ( CNA), check out the Financial Stock Short-Squeeze portfolio at Stockpickr.

And to find short-squeeze plays of your own, be sure to check out the Stockpickr Answers community for insights and investment ideas.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on