5 Hated Earnings Stocks You Should Love

DELAFIELD, Wis. (Stockpickr) -- Short-sellers hate being caught short a stock that reports a blowout quarter. When this happens, we often see a tradable short squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report sparks a big short-covering rally.

This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short time frame that your profits add up quickly.

That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best play is to wait for the stock to break out following the report before you jump in to profit off a short squeeze. This way, you're letting the trend emerge after the market has digested all of the news.

Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move by waiting. That's why it can be worth betting prior to the report -- but only if the stock is acting technically very bullish and you have a very strong conviction that it is going to rip higher. Just remember that even when you have that conviction and have done your due diligence, the stock can still get hammered if Wall Street doesn't like the numbers or guidance.

If you do decide to bet ahead of a quarter, then you might want to use options to limit your capital exposure. Heavily shorted stocks are usually the names that make the biggest post-earnings moves and have the most volatility. I personally prefer to wait until all the earnings-related news is out for a heavily shorted stock and then jump in and trade the prevailing trend.

With that in mind, let's take a look at several stocks that could experience big short squeezes when they report earnings this week.



FactSet Research Systems

My first earnings short-squeeze play is integrated financial information and analytical applications provider FactSet Research Systems  (FDS), which is set to release numbers on Tuesday before the market open. Wall Street analysts, on average, expect FactSet Research Systems to report revenue of $253.56 million on earnings of $1.41 per share.

The current short interest as a percentage of the float for FactSet Research Systems is notable at 5.8%. That means that out of the 40.78 million shares in the tradable float, 2.38 million shares are sold short by the bears. This is a decent short interest on a stock with a relatively low tradable float. Any bullish earnings news could easily set off a decent short-squeeze for shares of FactSet Research Systems post-earnings.

From a technical perspective, FactSet Research Systems is currently trending above both its 50-day and 200-day moving averages, which is bullish. This stock has been uptrending strong for the last six months, with shares moving higher from its low of $133.32 to its recent high of $168.70 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish technical price action.

If you're bullish on FactSet Research Systems, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $167.05 to its 52-week high of $168.70 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 308,300 shares. If that breakout begins post-earnings, then this stock will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $180 to $190 a share.

I would simply avoid FactSet Research Systems or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $162.10 to its 50-day moving average of $161.95 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $157 to $154 a share, or even $150 to its 200-day moving average of $144.12 a share.

Pier 1 Imports

Another potential earnings short-squeeze trading opportunity is decorative home furnishings, furniture and gifts player Pier 1 Imports  (PIR), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Pier 1 Imports to report revenue $434.53 million on earnings of 8 cents per share.

The current short interest as a percentage of the float for Pier 1 Imports is extremely high at 17.8%. That means that out of the 80.39 million shares in the tradable float, 14.34 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 11.4%, or by about 1.46 million shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily surge sharply higher post-earnings as the bears jump cover some of their trades.

From a technical perspective, Pier 1 Imports is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been consolidating over the last few weeks, with shares moving between $11.86 on the downside and $12.52 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Pier 1 Imports.

If you're in the bull camp on Pier 1 Imports, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $12.52 to its 50-day moving average of $12.85 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 2.46 million shares. If that breakout triggers post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $13.58 to $14.53 a share. Any high-volume move above $14.53 will then give shares of Pier 1 Imports a chance to re-fill some of its previous gap-down-day zone from February that started at $17 a share.

I would simply avoid Pier 1 Imports or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $11.86 to $11.51 a share and then below $11.20 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support levels at $10 to $9 a share, or even $8.50 a share.

Profire Energy

Another potential earnings short-squeeze candidate is oil and gas equipment and services player Profire Energy  (PFIE), which is set to release numbers on Monday after the market close. Wall Street analysts, on average, expect Profire Energy to report revenue of $7.78 million on earnings of 1 cent per share.

The current short interest as a percentage of the float for The Profire Energy is notable at 4.7%. That means that out of the 21.51 million shares in the tradable float, 1.02 million shares are sold short by the bears. The bears have also been increasing their bets from the last reporting period by 13.6%, or by about 121,000 shares. If the bears get caught pressing their bets into a bullish quarter, then this stock could easily rip sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Profire Energy is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending over the last two months, with shares moving lower from its high of $1.83 to its recent low of $1.22 a share. During that downtrend, shares of Profire Energy have been making mostly lower highs and lower lows, which is bearish technical price action. That said, this stock has now started to rebound off that $1.22 low and it's beginning to trend within range of triggering a near-term breakout trade post-earnings.

If you're bullish on Profire Energy, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $1.41 to its 50-day moving average of $1.46 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 248,869 shares. If that breakout develops post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $1.65 to $1.67 a share, or its April high of $1.83 a share.

I would avoid Profire Energy or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support at $1.22 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its 52-week low of $1.10 a share.

Bob Evans Farms

Another earnings short-squeeze prospect is full-service restaurant player Bob Evans Farms  (BOBE), which is set to release numbers on Tuesday after the market close. Wall Street analysts, on average, expect Bob Evans Farms to report revenue of $330.97 million on earnings of 41 cents per share.

The current short interest as a percentage of the float for Bob Evans Farms is pretty high at 12.4%. That means that out of 18.80 million shares in the tradable float, 2.33 million shares are sold short by the bear. The bears have also been increasing their bets from the last reporting period by 2.8%, or by about 62,000 shares. If the bears get caught pressing their bets into a strong quarter, then this stock could easily rip sharply higher post-earnings as the bears move fast to cover some of their positions.

From a technical perspective, Bob Evans Farms is currently trending below both its 200-day moving average and above its 50-day moving average, which is neutral trendwise. This stock is bouncing to the upside on Monday right above some near-term support at $47 a share. That bounce is starting to push shares of Bob Evans Farms within range of triggering a major breakout trade post-earnings.

If you're bullish on Bob Evans Farms, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some key near-term overhead resistance levels at $48.57 to its 200-day moving average of $48.76 a share with high volume. Look for volume on that move that hits near or above its three-month average volume of 280,125 shares. If that breakout gets set off post-earnings, then this stock will set up to re-fill some of its previous gap-down-day zone from March that started near $60 a share.

I would simply avoid Bob Evans Farms or look for short-biased trades if after earnings it fails to trigger that breakout and then drops back below some key near-term support levels at $47 to its 50-day moving average of $46.47 a share and then below more support at $44.49 a share with high volume. If we get that move, then this stock will set up to re-test or possibly take out its next major support level at $42.64 to $41.18 a share, or even $37.50 a share.

Actuant

My final earnings short-squeeze play is diversified machinery player Actuant  (ATU), which is set to release numbers on Wednesday before the market open. Wall Street analysts, on average, expect Actuant to report revenue of $322.08 million on earnings of 52 cents per share.

The current short interest as a percentage of the float for Actuant is notable at 3.8%. That means that out of the 54.45 million shares in the tradable float, 2.09 million shares are sold short by the bears. If this company can deliver the earnings news the bulls are looking for, then shares of Actuant could easily spike sharply higher post-earnings as the bears scramble to cover some of their positions.

From a technical perspective, Actuant is currently trending below both its 50-day and 200-day moving averages, which is bearish. This stock has been trending sideways for the last four months, with shares moving between $23.09 on the downside and $25.90 on the upside. Any high-volume move above the upper-end of its recent sideways trending chart pattern post-earnings could trigger a big breakout trade for shares of Actuant.

If you're in the bull camp on Actuant, then I would wait until after its report and look for long-biased trades if this stock manages to break out above some near-term overhead resistance levels at $24.48 to $25.50 a share and then above $25.90 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 590,020 shares. If that breakout begins post-earnings, then this stock will set up to re-test or possibly take out its next major overhead resistance levels at $27.06 to $27.88 a share, or even $30 to $32 a share.

I would avoid Actuant or look for short-biased trades if after earnings it fails to trigger that breakout, and then drops back below some key near-term support levels at $23.09 a share to its 52-week low of $22.55 a share with high volume. If we get that move, then this stock will set up to enter new 52-week-low territory, which is bearish technical price action. Some possible downside targets off that move are $20 to $17 a share.

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

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