5 Hated Stocks That Could Squeeze Higher in March

BALTIMORE ( Stockpickr) -- Investors have a love/hate relationship with stocks right now: They love some, and they hate others. Now's your chance to use that fact to your advantage.

Hate is a powerful emotion in the markets, especially when you can gauge it -- and we can. When I say that investors "hate" a stock, I'm talking about its short interest. A stock with a high level of shorting indicates that there are a lot of people willing to short shares (and bet on a decline in its share price) -- and not many willing to buy. But my research shows that that's historically been a pretty good gain indicator.

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Going back over the last decade, buying heavily shorted large- and mid-cap stocks (the top two quartiles of all shortable stocks by market capitalization) would have beaten the S&P 500 by 9.28% each and every year. That's some material outperformance during a decade when decent returns were very hard to come by.

It's worth noting, though, that market cap matters a lot.Short sellers tend to be right about smaller names, with micro-caps delivering negative returns when the same strategy was used.

Today, we'll replicate the most lucrative side of this strategy with a look at five big-name stocks that short sellers are piled into right now. These stocks could be prime candidates for a short squeeze in 2013.

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In case you're not familiar with the term, a "short squeeze" is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing 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 estimates 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.

Naturally, these plays aren't without their blemishes -- there's a reason (economic or otherwise) that these stocks are hated. But for investors looking for exposure to a speculative play with a beefier risk/reward tradeoff, the data tells us that these could be powerful upside plays for the coming year.

Without further ado, here's a look at our list of large-cap short squeeze opportunities.

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Sirius XM Radio

It's been a rough year for Sirius XM Radio ( SIRI) short sellers. This stock has risen more than 39% in the last 12 months, shellacking anyone who's bet against shares over that time. But that hasn't reduced the number of shares being shorted right now; it's increased it.

As I write, SIRI has a short interest ratio of 10.3, which indicates that it would take more than two weeks of nonstop buying at current volume levels for shorts to cover their positions.

Sirius XM has made a serious transformation since the combination of rivals Sirius and XM back in 2008. The firm today boasts 23.9 million subscribers, and increased subscription revenues have converted Sirius XM from a cash burner into a profitable business (much to the chagrin of shorts). Some big tailwinds for SIRI right now include strength in auto sales (two thirds of new cards come with Sirius XM receivers installed) and increased online streaming coverage. Put simply, if Sirius can continue to court more customers, or if it can convince existing customers to pay more, the firm benefits.

There are a few challenges facing Sirius XM right now to be sure. Increased in-car online connectivity means that streaming services like Pandora (P) can threaten the firm's positioning in the auto market. And ongoing drama with top shareholder Liberty Media keeps investors on their toes as well. But the short sellers are overdoing it in this stock, and that makes SIRI a prime short squeeze candidate this month.


Even though Sysco ( SYY) may not be a household restaurant name per se, it probably should be. That's because Sysco makes the food served at more than 400,000 restaurants, hotels and institutional dining facilities around the globe.

As the biggest food service distributor in North America, Sysco has some big advantages. But that hasn't stopped short sellers from unloading this stock.A short interest ratio of 12 means that it would take two-and-a-half weeks for shorts to exit their positions in this company.

Food distribution is all about the tradeoff between cost and quality -- too pricey and restaurants can't afford to stock their kitchens, too low-quality and restaurants lose with patrons. Sysco's size enables it to strike the balance very well with a more effective supply chain than smaller peers. From a food service standpoint, it makes sense to turn to a supplier like Sysco; after all, the firm can take many of the costs and food safety concerns off of a restaurateur's plate, helping profitability down the line as well.

While Sysco's growth-by-acquisition strategy has probably mostly run its course, there's still considerable room for organic growth as the pendulum keeps swinging toward higher consumer spending on dining out. Meanwhile, a hefty 3.5% dividend payout should keep eating away at shorts' ability to stay in this stock.

M&T Bank

It's a little surprising that M&T Bank ( MTB) is on our list of hated stocks. After all, this $13 billion regional banking name managed to come out of the Great Recession as one of the best-positioned banks in the country, and its performance continues to impress investors. In the last 12 months alone, shares have climbed close to 25%, easily besting the performance bought on by the broad market.

But short sellers see that performance as overblown at this point -- and they've boosted M&T's short interest ratio up to 10.3 as a result.

M&T Bank is one of the bigger regional banking names in the country, occupying a second tier in between the mammoth big-four banks and the hundreds of smaller regional names. Part of M&T's secret to success has been its unique business model: Believe it or not, this bank is actually a bank. That persistence in the retail banking space, coupled with strict underwriting policies, is a big part of why M&T was able to make it through the Great Recession without the struggles peers faced. In fact, this firm managed to grow its book considerably by buying smaller beleaguered banking names.

Even though the low-interest-rate environment that's being promulgated by the Fed is creating a challenges for MTB, the bank has been making up for it by increasing volume in recent quarters, particularly in its commercial loan book. This bank's lack of missteps isn't a reason to bet that it's due for one and short shares -- it's a reason to be a buyer.

Virgin Media

2013 is panning out to be a stellar year for Virgin Media ( VMED). Shares of the $12 billion UK-based cable TV operator have climbed more than 23% so far this year, crushing the S&P 500's 5% ascent over the same period.

That doesn't say much for the short sellers right now -- other than that there are a lot of them. With a short interest ratio of 12.4, it would take more than half a month of buying pressure for short sellers to exit VMED right now.

Virgin Media's modern cable network reaches approximately two-thirds of the UK's population. While the firm is the underdog in the pay-TV segment, it's quickly catching up to become a league leader in the broadband internet business, boasting connection speeds that incumbents can't match. Cross-selling opportunities are golden for firms such as Virgin Media, since offering services such as broadband or phone to existing cable customers is far more profitable than single-service accounts are (and typically preferable for consumers as well).

But a new, modern network does come with costs. While a heavy debt load has previously been a major shareholder concern, recent restructuring takes a considerable amount of pressure off of management in the short-term. Maybe someone should tell the shorts -- VMED makes a solid squeeze candidate right now.


Last up is Equinix ( EQIX), a $10 billion data center stock that tips the scales as the biggest provider of data collocation services. The firm's data centers take up 6.5 million square feet spread across the globe on five continents. And its shares are spread among short sellers -- the firm's short interest ratio weighs in at 12.4.

The datacenter business has been on fire in recent years, as increased use of cloud services among consumers ratchets up demand for hosted storage space. With data needs projected to continue to grow at a breakneck rate, that trend isn't likely to be over for Equinix. The firm's track record of large capabilities and industry-leading uptime give it an edge over smaller competitors who don't possess the same infrastructure.

Financially, Equinix is in strong shape, with a $540 million cash position that helps to offset the firm's $3 billion debt load. The firm should have no trouble generating the cash it needs to service its debt. As EQIX continues to assert its data center dominance in the cloud, investors should benefit in 2013.

To see this week's short squeezes in action, check out the of Foreign Short Squeezes portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
TheStreet . Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily , and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

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