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When a company makes a misstep in the eyes of shareholders and the public, or when a broad sector or market takes down a stock, opportunities increase tremendously for negative short sellers to beat down equities even further. There are many times, however, when short sellers go too far, and a negative trade becomes crowded or overdone as the bears get greedy. These stocks, often considered battleground names, become much more prone to risk and volatility, but also more prone to gap higher if any positive catalyst presents itself. I believe the names on this list have been beaten down too far either because of company specific factors or because of a sector-wide decline that brought the bears in to stay. If anything positive happens with these stocks, look for shares to rise as short sellers cover their positions as they are obligated to do at some point, which can cause a chain reaction where the bears cut their losses and the stock floats higher as shares are bought back.

Short InterestRatio(Days)Float(Mil)
Standard Pacific (SPF)32.6%6.3123.69
Vera Bradley (VRA)71.2%30.712.81
Liquidity Service Inc.(LQDT)37.8%24.624.76
Bio-Reference Labs Inc.(BRLI)40.12%22.221.66

1. Standard Pacific

Standard Pacific is a single family home and detached home builder that does business in California, Florida, Arizona, Texas, and other states around the U.S. With over 32% of the float sold short, this stock has many who believe the housing industry has run up too much and is in need of a pullback. However, shorts in this name are feeling the pressure, as SPF is up 14% year to date, and up 6% on June 13, alone. If interest rates stabilize, or if housing numbers continue to be strong, especially in California, then short sellers will be forced to cover their positions as margin calls or a dent in morale cause the bears to run. This could mean a large short squeeze for Standard Pacific, which would augment the more than 70% run the stock has had in the past year. I would be a buyer up to resistance at around $10 a share.

2. Vera Bradley

Shares of this high-end retailer were down 13% on June 6, after the company announced that its CEO would be stepping down after a replacement is found, despite a solid quarter that beat the Street's estimates. Insider ownership of Vera Bradley comes in at almost 18% of the company, which is a huge plus for shareholders. This is because insiders in the company want what investors want - a rising stock. If company interests are aligned with shareholder interests, there is much more confidence put into managements decisions and actions, since people know they have a vested interest in the company. If a competent CEO is found, or if VRA's numbers continue to shine, short sellers are going to have a hard time keeping the price down, which presents an opportunity for a short squeeze if things get positive again.

3. Liquidity Service Inc.

LQDT is an online auction marketplace that facilitates transactions in over 500 products. The company is being shunned by investors because its merchandise numbers are showing a slowdown in growth, but the shorts might be too involved in the stock. Liquidity Services was listed on Forbes' list of 2013's fastest-growing tech companies, and with around 36% yearly growth over the past five years, the stock still looks cheap compared with its multiple of about 26. LQDT is also financially stable, with no debt on its balance sheet to weigh it down. If the company can find a way to impress analysts and investors, possibly by directly returning capital to shareholders, this could scare shorts out of the name and push the stock higher.

4. Bio-Reference Labs Inc.

Bio-Reference Labs is a research company that is involved in clinical lab testing services in order to find treatments for life-threatening diseases. Recently a patent case involving DNA samples was ruled in Bio-Reference's favor, which allows the subsidiary, GeneDx, to conduct genetic testing for breast cancer. This could potentially contribute to BLRI's bottom line in a big way, and should serve as a warning to short sellers in the name. If the tests show results, expect the share price to reflect not only massive short covering, but real value in the company, as well.

With the market becoming more volatile and less transparent, more opportunities arise for good companies that are beaten down by short sellers to change their fortunes and prove the bears wrong. I believe these stocks are an example of this phenomenon, so look for short interest to decline in the coming weeks and months with any good news for these stocks. Since there is greater risk in these names, I would suggest placing tight stops on any long positions put in place, but as the summer progresses, I think the bulls will prevail and push the shorts out of the market, causing shares in these four companies to rise considerably.

Source: These Stocks Are In For A Squeeze