Everyone loves a good short squeeze. Except those unlucky shorts, of course.
We ran a screen to find companies with floats short 30% or higher, which means that for all shares available for trading (the float), 30% or more of those shares are “borrowed” to sell short.
We then narrowed down the group further by finding stocks with insider purchases of over 5% in the last six months, giving us an idea that management thinks shares are undervalued, and a current ratio of over 0.5, a decent indicator the company can cover short-term obligations.
This screen provided us with 6 stocks with high short interest whose price could benefit from a short squeeze this year into 2011. Here they are…
1.) Corinthian Colleges Inc (COCO): This for profit college has been hammered this year, down almost 70% since January 1, along with the rest of the big for-profit names like Apollo Group (APOL), ITT Educational Services (ESI) and Devry (DV). Recently, COCO's CEO resigned after less than two years at his post.
The frantic selling comes after news that the sector may lose access to government student aid, which provided for-profit colleges with $26.5 billion last year, according to Bloomberg. US Education Secretary Arne Duncan is also preparing for a host of new regulations on the industry. As a result, shorts have been having a heyday. Short float is 31.51% at the time of writing.
Despite all these ominous signs, we could see a short squeeze in 2011. The culprit? A Republican lead House friendly with the for-profit education sector could block any of Duncan’s regulation and allow business to continue as usual. Nonetheless, we think shorts are on to something with this name, and expect better results and price action from Apollo and Strayer (STRA).
2.) Power-One Inc (PWER): Power-One is a top-ten power conversion equipment manufacturer with a market cap of $1 billion. The company’s largest revenue gains last quarter came from the solar industry. So why is PWER despised by short sellers? The company’s share price has almost tripled this year moving from $3.10 at the beginning of February to $9.42 at the time of writing, meaning new buyers may be paying up for growth. Short float is 42.38%. Should the company continue to beat analyst expectations next year, shorts could get squeezed, and investors may make some decent gains.
3.) ATP Oil & Gas (ATPG): ATPG engages in off-shore drilling and production at proven, but not-yet-developed fields in the Gulf of Mexico and North Sea. Longs and shorts love and hate this company for various reasons. We’ve written our thesis on ATPG here, so we won’t get into all the details in this article. But with a short float of 42.78%, any progression on its permits pending should send shorts scurrying for the exits.
4.) Barnes & Nobel, Inc (BKS): Despite strong retail sales, this retail bookseller posted a larger than expected loss during Q2 on November 30. Many believe the retail book biz, with its low margins and large inventory requirements, is a quickly dying industry. Prior to the announcement, the shorts had been out in full force. Short float sits at 34.25% at the time of writing. Should the company’s new product, the Nook e-reader, outperform expectations, BKS could experience a short squeeze once holiday sales figures are out. Nonetheless, we think shorts will maintain an upper-hand until management gets the company ahead of the curve.
5.) Alliance Data Systems Corporation (ADS): ADS’s data-driven and transaction-based marketing and customer loyalty programs are profitable, but aren’t immune to a soft economy. The company’s short float is 37.70%. As the economy recovers, ADS’s share price could as well, leading to a nice short squeeze for shareholders.
6.) The Great Atlantic Pacific Tea Company, Inc (GAP): This supermarket conglomerate has faced headwinds recently. That’s a nice way of putting that they’re in deep trouble. A torrent of declining same store sales has lead some to ponder whether the company can stay afloat. Adding to fuel to fire was news the company was looking for a loan that would give lenders a priority claim on its assets in a bankruptcy. Short float is currently at 56.73%. It’s not looking good for GAP, especially with Whole Foods (WFMI) and other chains nipping at its sales. But if the company’s turnaround plan works, shorts could get squeezed next year. We think a turnaround in the business and in shares is unlikely, but most of the “easy money” on the downside has been made.
Disclosure: Author is long ATPG