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Low-priced stock can make big moves, both up and down. The key for investors is to buy when valuations are cheap and when shorts may have gone too far. Short sellers often target smaller companies and can push a stock down way below any reasonable level of valuation. However, this can create significant buying opportunities because shorts can become a victim of their own success. When too many shorts get involved in a stock, it can lead to a short squeeze that results in a sudden surge in the stock.

A big short position that goes awry doesn't always lead to a sudden squeeze, sometimes it just causes a stock to drift higher as shorts cover their positions. A number of stocks have burned short sellers in the past year. For example, shorts piled into BlackBerry (BBRY), which took that stock down to about $6, but it roughly tripled in value in just a short time. Hewlett-Packard (HPQ) shares also became a favorite for many shorts late last year. However, shorts were subsequently burned as the stock more than doubled from about $11 to a current $22 per share. Here are three more stocks where shorts could be squeezed higher:

As I recently detailed in another article, Iridium (IRDM) shares appear very undervalued and this stock could more than double. The article points out that one fund manager believes Iridium shares are worth about $12 now and up to $32 per share by 2017. This company is profitable, it trades below book value and for a price-to-earnings ratio of around 6 times. If that is not enough, it also could be in store for a significant short squeeze that could help send the stock much higher.

Short-squeeze potential: Iridium was launched many years ago and back then, it had a very leveraged balance sheet due to the billions it had to spend to launch the satellite network. That led to a bankruptcy in 1999, and shorts still seem to hope that lightning will strike twice. However, that belief seems extremely misguided because the newly formed Iridium was created in 2001. It is not the same company even though it uses the "Iridium" name and it does not have the billions in debt or expenses that the original company had to incur. Iridium has a solid balance sheet and it is profitable and growing. This misguided pessimism by shorts could be creating significant risks for them as a potential short squeeze looms.

According to Shortsqueeze.com, there are about 7.6 million shares short. Since Iridium trades an average daily volume of around 650,000 shares, the short position is equivalent to about 12 days' worth of trading volume. That is more than enough to create significant buying pressure in the stock. Having a strong short position in a stock can benefit longs because it means there are many shorts that sooner or later will need to buy the stock. While the shares have been impacted to the downside by the short-selling, the stock could also benefit to the upside when those shares are covered at what might be significantly higher prices.

Advanced Micro Devices, Inc. (AMD) seems to be a very out of favor tech stock, but investor pessimism often goes far beyond reasonable levels and in some cases that can create cheap buying opportunities. While AMD faces serious challenges and incredibly capable competitors like Intel (INTC), it has historically managed to remain a major player in this industry. With the shares trading just over $2, it might be time to take a fresh look at some of the positives and upside potential that could come with a turnaround.

An economic recovery and demand from Asia and emerging markets could boost the outlook for semiconductor stocks. AMD has also implemented some restructuring plans that are designed to reduce overhead. If the company is successful in lowering expenses, it could return back to profitability sooner than expected. Analysts are expecting AMD to post a small loss in 2013, however, the estimates are near break-even for 2014. While AMD has not always had consistent financial results, it did earn 67 cents per share in 2011 and 64 cents in 2010. That shows the kind of earnings power this stock has, when conditions are right.

As Ashraf Eassa points out in a recent article, AMD is getting more aggressive in the graphics chip market and it has made some moves that might allow it to further compete with the likes of Nvidia (NVDA). Graphic chips can be a higher margin product for companies and it is an important market, even if it is considered a niche.

While many investors seem to have lost interest in AMD, some analyst are very bullish. In March 2013, analysts at Wells Fargo announced an outperform rating and set a price target range of $5.00 to $7.00. The bullish view seemed to be based on AMD's latest "Richland" processors and restructuring benefits. A recent article states:

Commenting on developments, analyst David Wong of Wells Fargo said, "We think it is notable that Richland represents a third generation of chips on 32nm technology, with AMD not planning to move to 28nm till later this year. . . . AMD has been bringing out some interesting new microprocessor products which leverage its graphics expertise. In our view, the company has done a good job in restructuring its business to reduce risk from high capital needs."

According to Shortsqueeze.com, there are roughly 95.5 million AMD shares short. With average trading volume of about 11.3 million shares, the short position is equivalent to more than 7 days of trading volume. If any good or better than expected news is released, this stock could see an accelerated move to the upside since so many shorts are trying to play the downside. However, since AMD has posted losses recently, this is a more speculative pick.

Supervalu Inc. (SVU) is a stock pick I suggested in 2012, when it was trading for about $2.32 per share. Since then it has more than doubled and shorts have already learned a painful lesson, but even now, it has substantial upside potential. (It is still trading well below the 52-week high of $6.78.) Supervalu is a leading grocery retailer known for having some of the best-known companies in the industry such as Albertson's, Farm Fresh, Jewel-Osco, Lucky, Save-A-Lot, and others.

Supervalu recently agreed to sell Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores in a deal valued at $3.3 billion to Cerberus Capital Management. This gives Supervalu a major infusion of cash and it allows the company to restructure, reduce management and other expenses and focus on its remaining businesses. The company recently announced it would layoff 1100 employees, and that could lead to significant cost savings.

According to Shortsqueeze.com, there are about 73.4 million Supervalu shares short and this stock has average daily volume of around 5.1 million shares. That means the current level of short interest is equivalent to about 14 days of average volume. That is a lot of potential short-covering and clearly at least one top hedge fund appears to see major upside remaining. On April 1, SAC Capital reported it owned a 5.1% passive stake in Supervalu.

Data sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Source: These Below $7 Stocks Look Cheap And Have Significant Short-Squeeze Potential

Additional disclosure: I may buy AMD shares and more IRDM soon.