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Some of the worst-performing stocks on Monday during the big down day on Wall Street were commodity-related firms. China's below-consensus GDP report got things rolling and then everything snowballed from there. A Chinese bird flu outbreak did not help things either. That left individual investors, like myself, and market professionals trying to figure out where to go from here. I did some digging and found one great place to look: the same commodity stocks that were significantly impacted by Monday's sell-off. However, I decided to screen even further and look at commodity stocks with a high short interest. I think that commodity stocks with a high short interest are an even better fit because stocks with high short interest always have the potential of a short squeeze. The short squeeze could be triggered at any time because of the build-up of market traders needing to cover their short positions. Furthermore, there is no better time to cover a short position than after a stock has tumbled and pessimism is at its peak, because even a small catalyst for the shares can trigger a big short covering and consequently a big move in the stock. So I scoured the list of metal stocks with a high short interest and found two steel, one gold and one rare-earth metal stock that fit the theme.

Molycorp (MCP) is one of the world`s leading manufacturers of custom engineered rare earth and rare metal products. The company is vertically integrated from its world-class rare earth resources to its advanced downstream processing facilities. With 26 locations across 11 countries, the company also produces rare earth magnetic materials, including neodymium-iron-boron magnet powders, used to manufacture bonded NdFeB permanent rare earth magnets. MCP also markets and sells its proprietary, cerium-based advanced water purification technology called SorbX for use in municipal and industrial wastewater treatment, recreational water, and pool and spa water treatment.

MCP is one of the most talked about stocks for its size, especially with the downturn MCP shares have experienced. The shares are now down 85% over the past year and some estimates are predicting even more of a drop to $2.21 a share. Analysts, however, have stayed positive on the stock and even now, see a price of more than $9 a share for MCP. Even the most bearish analyst on the Street has a price target of $6 on the stock, which is 20% higher than where the shares are today.If the company is going to be able to turn around, the jump in share price will be quick and big with 34% of the float short. The improvement, though, will have to be sustainable because the company has $1 billion of net debt, which increases the risk and is acting as an overhang on the shares. Any short-term uptick will be judged with caution given the down trend MCP is experiencing.

AK Steel (AKS) produces flat-rolled carbon, and stainless and electrical steels, primarily for theautomotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets. AK Tube LLC, a wholly-owned subsidiary of AK Steel, produces carbon and stainless, electric resistance welded, tubular steel products for the truck, automotive and other markets. AK Coal Resources Inc, another wholly-owned subsidiary, controls and is developing metallurgical coal reserves in Somerset County, Pennsylvania. AK Steel also owns 49.9% of Magnetation LLC, a joint venture headquartered in Grand Rapids, Minnesota, which produces iron ore concentrate from previously mined ore reserves.

Nearly 29% of AK Steel's float is short, making it one of the most highly shorted stocks in the market. However, that only tells part of the story. Analysts have set a price target close to twice the current share price. Steel is also expected to experience industry tailwinds in 2013 as global steel demand is expected to improve.

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Although some would describe the position that AK Steel is in as precarious, that hasn't stopped the company from boosting prices on its products, which is a good sign. The last price increase came on Friday as the company said that it will increase base prices for all 200, 300 and 400 series flat rolled stainless steel products, effective with shipments on May 6, 2013. AK Steel said this increase will be achieved through a reduction in the functional discount of two percentage points for cold rolled and hot rolled non-automotive exhaust products. Base prices for automotive exhaust grades will increase $0.03 per pound, effective with shipments on June 3, 2013.

Goff Corp (OTCPK:GOFF) is a gold mining company through its subsidiary, Golden Glory Resources. Golden Glory Resources is engaged in mineral exploration. Its primary focus is the La Frontera Gold Project in the Aguadas Departmentof Caldas, Colombia, about 60 km south of Medellin. This region has been a productive mining area since before the Spanish came to South America and is today one of the most productive gold areas. The area is especially active in terms of gold exploration and production.

Goff Corp has released a string of positive announcements recently documenting the potential of its Colombian assets. Monday's announcement reported that its recent acquisition of gold concessions in Colombia now place the company among the country's top gold exploration mining companies with several potential multi-million ounce gold projects. Friday's announcement documented the company's plans to pursue a 20-hole diamond drill exploration program on its Gavia Gold Project in the Marmato region of the Caldas District, Colombia. The leases are reported to offer multimillion ounce, large tonnage, bulk mineable targets with potential of up to three grams of gold per ton on average.

Overall, the company is in strong shape with management patiently adding quality mining assets to an already strong base of projects. If the company has done anything right, then being in Colombia is it. The country has a history of gold production and in contrast with some other developing markets, Colombia has a solid government in place. Colombia has a growing economy, free trade agreements with 48 countries, a government that is very supportive of foreign investment,and is rankedsecond in Latin America for personal safety and protection of private property. One final note, as I noted above that we are looking for metal stocks with squeeze potential, the company fits the bill with 32% of the daily trading volume short. If the positive news keeps coming in, the stock may have a wild run with the short covering giving the shares a boost.

US Steel (X) is an integrated steel producer with major production operations in the United States, Canada and Central Europe, and an annual raw steel making capability of 29.3 million net tons. The company manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and gas industries.

US Steel is the biggest company on my list with 2012 revenue of more than $19 billion and a market capitalization in the $2-billion range. It is also the second stock on the list, a telltale sign of what's happening with steel stocks. US Steel,however, is ina different position. First of all, analysts have a target of $26 on the shares, $10 more than where the stock is currently trading. It was also just mentioned as a possible trade that could make a 500% move up in an up market. Another analyst said that the last time US Steel was trading at this level it had a nice run up to $26, pointing out, I believe the entire [steel] sector has been oversold and is due for a bounce. X may reach price targets a lot quicker than some think with more than 25% of the float sold short, providing juice for any rally.

Source: Metal Stocks With Short Squeeze Potential

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