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Interested in short squeeze ideas? A short squeeze occurs when a highly shorted stocks sees a bump up in price that causes a cascade of short sellers to close their positions, causing the stock to rally even higher.

One way to search for short squeeze candidates is to find highly shorted stocks that appear undervalued to the Graham number.

Benjamin Graham, known as the “godfather of value investing,” created an equation that calculates the fair value of stocks based on two fundamental data points: current earnings per share and current book value per share. 
The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). 

This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

Stocks trading at a significant discount to their Graham number may be undervalued.

We ran a screen on stocks with float shorts above 15% for those trading at steep discounts to their Graham numbers.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks are likely candidates for a short squeeze? Use this list as a starting-off point for your own analysis.

List sorted by potential upside implied by Graham number.

1. Entropic Communications, Inc. (NASDAQ:ENTR): Designs, develops, and markets systems solutions to enable connected home entertainment. Market cap of $516.17M. Float short at 20.42%. TTM Diluted EPS at $0.93, MRQ Book Value Per Share at $3.21, Graham number at $8.20 (vs. current price at $5.97, implies a potential upside of 37.28%). This is a risky stock that is significantly more volatile than the overall market (beta = 2.52). The stock has recently rebounded, and is currently trading 22.39% above its SMA20 and 32.88% above its SMA50. However, the stock still trades 19.24% below its SMA200. The stock has had a couple of great days, gaining 22.34% over the last week.

2. JetBlue Airways Corporation (NASDAQ:JBLU): Provides passenger air transportation services in the United States. Market cap of $1.38B. Float short at 15.18%. TTM Diluted EPS at $0.31, MRQ Book Value Per Share at $5.69, Graham number at $6.30 (vs. current price at $4.66, implies a potential upside of 35.19%). The stock has recently rebounded, and is currently trading 8.1% above its SMA20 and 8.31% above its SMA50. However, the stock still trades 14.78% below its SMA200. The stock has had a couple of great days, gaining 7.87% over the last week.

3. DreamWorks Animation SKG Inc. (NASDAQ:DWA): Engages in the development, production, and exploitation of animated feature films and characters worldwide. Market cap of $1.66B. Float short at 16.88%. TTM Diluted EPS at $1.98, MRQ Book Value Per Share at $15.57, Graham number at $26.34 (vs. current price at $19.85, implies a potential upside of 32.68%). The stock has recently rebounded, and is currently trading 9.06% above its SMA20 and 5.37% above its SMA50. However, the stock still trades 14.21% below its SMA200. The stock has had a couple of great days, gaining 7.65% over the last week.

4. NuVasive, Inc. (NASDAQ:NUVA): Engages in the design, development, and marketing of minimally disruptive surgical products and procedures for the spine. Market cap of $709.64M. Float short at 15.33%. TTM Diluted EPS at $1.85, MRQ Book Value Per Share at $12.82, Graham number at $23.10 (vs. current price at $17.79, implies a potential upside of 29.85%). The stock is currently stuck in a downtrend, trading 11.58% below its SMA20, 23.06% below its SMA50, and 43.65% below its SMA200. The stock has performed poorly over the last month, losing 13.09%.

5. Sonic Automotive Inc. (NYSE:SAH): Operates as an automotive retailer in the United States. Market cap of $817.19M. Float short at 26.87%. TTM Diluted EPS at $1.74, MRQ Book Value Per Share at $9.36, Graham number at $19.14 (vs. current price at $15.32, implies a potential upside of 24.95%). Exhibiting strong upside momentum--currently trading 15.05% above its SMA20, 18.21% above its SMA50, and 10.78% above its SMA200. The stock has had a couple of great days, gaining 18.81% over the last week.

6. CACI International Inc. (NYSE:CACI): Provides information technology (NYSE:IT) and professional services to the U. Market cap of $1.68B. Float short at 15.08%. TTM Diluted EPS at $4.61, MRQ Book Value Per Share at $43.28, Graham number at $67.00 (vs. current price at $55.34, implies a potential upside of 21.07%). Might be undervalued at current levels, with a PEG ratio at 0.9, and P/FCF ratio at 7.96. The stock has had a good month, gaining 13.34%.

7. Meredith Corp. (NYSE:MDP): Engages in magazine publishing and related brand licensing, television broadcasting, integrated marketing, interactive media, and video production businesses in the United States. Market cap of $1.28B. Float short at 22.40%. TTM Diluted EPS at $2.78, MRQ Book Value Per Share at $17.20, Graham number at $32.80 (vs. current price at $28.13, implies a potential upside of 16.60%). The stock has had a couple of great days, gaining 19.75% over the last week.

8. CBIZ, Inc. (NYSE:CBZ): Provides professional business services, products, and solutions to businesses, individuals, governmental entities, and not-for-profit enterprises in the United States and Canada. Market cap of $338.41M. Float short at 17.28%. TTM Diluted EPS at $0.52, MRQ Book Value Per Share at $5.21, Graham number at $7.81 (vs. current price at $6.72, implies a potential upside of 16.18%). Might be undervalued at current levels, with a PEG ratio at 0.76, and P/FCF ratio at 7. The stock has gained 15.57% over the last year.

*BVPS and EPS data sourced from Yahoo! Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 8 Highly Shorted Stocks Undervalued By Graham