The big U.S. stock market averages are back within spitting distance of all-time highs again in May, adding to the lengthening list of reasons why investors should be loving stocks in 2017.
But while investors should love stocks right now, it's the ones they hate the most that could pack the biggest gain potential this spring.
When sentiment gets to extremes against individual stocks, it creates an important buying opportunity. Over the last decade, buying the most hated and 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.
In other words, the largest massively shorted stocks are actually more likely to squeeze higher than to drop...
For our purposes, 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.
Today, we'll replicate the most lucrative side of this strategy with a look at three big-name stocks that short sellers are piled into right now.