One potential problem for shorts is when too many people short the same stock. When a stock is shorted to the point where it becomes an overcrowded trade, it can spark panic buying (a short squeeze). A short squeeze is a big risk for shorts. A small jump in price and/or some good news being released by the company can spark buying by shorts who want to cover their shorts and cut potential losses before other shorts. The past few weeks have been great for shorts in general as the market has declined, but the momentum almost always turns. Here are some companies that could be next to see a short squeeze:
American Superconductor (NASDAQ:AMSC) is trading at about $3.85. These shares have a 52-week range of $3.21 and $38.88. The 50-day moving average is $5.73 and the 200-day moving average is $14.97, so the shares are trading well below these key support levels. Book value is stated at $9.86 per share. This stock fell significantly when a major customer refused shipments, however this company has quality products and technology, which should be in demand in the long run. However, it could take a long time for this one to rebound so I would not take a large position here. According to the latest data, about 8.6 million AMSC shares are short.
Jinkosolar Holding Co., Ltd. (NYSE:JKS) is trading at $6.30. The 50-day moving average is $12.53 and the 200-day moving average is $22.19. JKS has earnings estimates of about $4.40 per share for 2011 and $1.82 for 2012. This puts the PE ratio at extremely low levels. JKS just announced idling of one factory due to possible pollution issues came to surface after protests from local resident. This caused the stock to plunge but it has started to rebound. According to the latest data, about 6 million JKS shares are short.
LDK Solar (NYSE:LDK) is trading at $3.40. LDK is one of the largest makers of solar products in China. The 50-day moving average is $5.07 and the 200-day moving average is $8.92. LDK has earnings estimates of about 23 cents per share for 2011 and 37 cents for 2012. These estimates are sharply lower than what they were a few weeks ago due to margin pressures and a significant reduction in revenue guidance from LDK. According to the latest data, about 30 million LDK shares are short.
Nutrisystems, Inc. (NASDAQ:NTRI) shares are trading at $11.94. Nutrisystems provides weight loss systems. The 50-day moving average is $12.20 and the 200-day moving average is $14.63. These shares have traded in a range of $10.46 to $22.65 in the last 52 weeks. Earnings estimates for NTRI are 66 cents per share in 2011 and $1.05 in 2012. The dividend is 70 cents per share per year, which is a yield of about 5.8%. Nutrisystems is one of the most popular weight loss programs, and even in a tough economy, most people will keep weight loss and getting fit as a top priority. According to the latest data, about 6.5 million NTRI shares are short.
KB Home (NYSE:KBH) shares are trading at $6.15. KB Home is a leading home builder. The 50-day moving average is $6.29 and the 200-day moving average is $10.74. The book value is $5.76 per share. Earnings estimates indicate a loss of about $2.48 per share for 2011, and smaller loss of about 16 cents for 2012. KB Home has been losing money recently and by looking at earnings estimates for the next couple of years, this looks like a good stock to sell on any rallies. According to the latest data, about 27.5 million KBH shares are short.
Abraxas Petroleum Corporation (NASDAQ:AXAS) are trading at $2.57. These shares have traded in a range of $1.86 to $6.16 in the last 52 weeks. The 50-day moving average is $3.32 and the 200-day moving average is $4.24. AXAS is estimated to earn about 12 cents per share in 2011, and 36 cents in 2012. These shares have jumped up in the past couple days, so I would wait for pullbacks. At $4 or less, which is around the 50-day moving average, these shares are cheap, based on the growth potential. According to the latest data, about 23 million AXAS shares are short.
Magnum Hunter Resources (MHR) is trading around $3.34. Magnum is an independent oil and gas company, based in Texas. These shares have traded in a range of $3.75 to $8.66 in the last 52 weeks. The 50-day moving average is $4.46 and the 200-day moving average is $6.48. MHR is estimated to lose about 6 cents per share in 2011 and earn about 16 cents in 2012. Magnum controls about 46,000 acres in the Marcellus Shale region as well as exposure to the Eagle Ford and Bakken. Oil stocks with exposure to the Bakken Range have big potential. According to the latest data, about 27 million MHR shares are short.
Data sourced from Yahoo Finance and shortsqueeze.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long JKS.