BALTIMORE (Stockpickr) -- Few industries are as attuned financially to the ebb and flow of consumer sentiment as retail is. Retail stocks were among the first (and worst) to see pullbacks in 2008 as the economy soured and consumers hoarded cash. Retail stocks were also among the first to see their top lines benefit from a resurgence of spending.Now that investors have become increasingly anxious about the economy once again, we're taking a look at five retail stocks that have potential for a short squeeze. The timing is especially important right now, with the University of Michigan's preliminary Consumer Sentiment numbers for October set to hit Wall Street on Friday morning. A strong showing could shake out some unconvicted shorts in this market. >>Also: 5 Retail Stocks Set for a Comeback When that happens, you've got the potential for a profitable short squeeze on your hands. A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing short-sellers to cover their positions -- and share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which divides shares short by average daily trading volume in order to get a ballpark estimate of the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed. >>Also: 5 NYSE Short-Squeeze Opportunities Here's a look at a handful of retail stocks that have the potential to see a short squeeze at current levels.
Shares of Dollar General ( DG) have already made double-digit moves in 2010, much to the chagrin of the shorts. Owners of this discount store chain have seen their stakes climb nearly 30% since the first trading days of January. Still, that ascent hasn't halted bets against this stock: Dollar General currently sports a short ratio of 12.9.
A strong balance sheet alone hasn't been enough to keep small-cap grocery chain Weis Markets ( WMK) from the short-sellers. With a short ratio of 22.6, it would take more than four weeks for short-sellers to close their positions at current volume levels.
The last several years have been a bit harder going for Sears Holdings ( SHLD), but investors shouldn't discount this household name just yet.
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