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Many shorts have had a great year, thanks to a rough year for the stock market. While a number of concerns remain for the economy and risk assets like stocks, there is also a complete disconnect in the long-term value of certain companies and the current share price. In many cases, stocks have been mercilessly beaten-down due to extreme pessimism, investors selling for tax-loss purposes at the last weeks of the year, and shorts who have profited handsomely by pressing their luck.

When too many shorts pile into the same stock, it often results in a cycle which can start with a panic sell-off in the stock, forced margin call selling, which can lead to tax-loss selling, which can lead to even more selling, to a point where the stock is ridiculously undervalued. At the end of the year, these cycles frequently reverse and these reversals often begin with the end of tax-loss selling in the last days of December, then the stock starts to show strength, then buyers get confidence to buy since the stock has bounced off the lows, and this often triggers a short squeeze as heavily shorted stocks are covered.

Some of the best short squeeze gains occur when panic-stricken buying and even forced buying occurs when shorts are automatically made to cover due to margin calls received by their brokerage firm. With not many trading days left this year, these heavily shorted stocks are poised to surge as the tax loss selling that has been pressuring these stocks comes to an end. Below, are a number of stocks which are poised for a possibly imminent short squeeze, as the tax-loss selling fades in the last few days of trading for 2011. (The days to cover number represents how many days of average volume it would take for shorts to cover their entire position. The higher the number of days to cover means the possibility for a short squeeze is greater, and the potential size of the short squeeze is also greater.)

Cenveo, Inc. (NYSE:CVO) is a leading printing company, which offers products such as forms, envelopes, labels, and other products. The commercial printing division also produces periodicals, annual reports, books, directories, calendars, catalogs, etc. Insiders seem to believe this stock is deeply undervalued because multiple insiders have been buying shares recently. Furthermore, the CEO is a major shareholder and owns over 3 million shares, and he continues to increase his position. These shares have been punished in 2011 and now trade at bargain levels. This puts the shorts at risk of an imminent short squeeze as tax loss selling fades in the next few trading days.

Here are some key points for CVO:

  • Current share price: $3.03
  • The 52 week range is $2.64 to $6.85
  • Earnings estimates for 2011: 52 cents per share
  • Earnings estimates for 2012: 63 cents per share
  • Annual dividend: none
  • Number of shares short: about 6.7 million
  • Days to cover: about 22 days, based on average volume

Phoenix Companies, Inc. (NYSE:PNX) offers annuities and life insurance products in the United States. This company is facing some challenges such as slow sales, but it has a book value of nearly 4 times the current stock price. This stock was trading around $2.40 a couple weeks ago and could be set to rebound soon.

Here are some key points for PNX:

  • Current share price: $1.39
  • The 52 week range is 97 cents to $2.86
  • Earnings estimates for 2011: 44 cents per share
  • Earnings estimates for 2012: 46 cents per share
  • Number of shares short: about 8.7 million
  • Days to cover: about 17 days, based on average volume

Hartford Financial Services (NYSE:HIG) is a leading insurance company and also offers other financial products both in the USA and globally. Hartford earnings have been coming in below expectations due to asbestos litigation and losses from major storms. This lower than expected profit has caused the shares to drop along with the stock market and has created a great buying opportunity for longer term investors. Insurance is a must for most people and Hartford is deeply undervalued at current levels.

Here are some key points for HIG:

  • Current share price: $14.96
  • The 52 week range is $14.56 to $31.08
  • Earnings estimates for 2011: $1.86 per share
  • Earnings estimates for 2012: $3.36 per share
  • Annual dividend: 40 cents per share, which yields 2.6%
  • Number of shares short: about 26.4 million
  • Days to cover: about 3.6 days, based on average volume

ATP Oil and Gas Corporation (ATPG) is an oil and gas exploration and development company. These shares traded for about $50 in 2008, before the financial crisis and after a sharp drop with the markets, the stock appears to be a bargain. This company has strong growth potential and profits are expected to be strong in 2012. In September, these shares traded for over $13 and could rebound quickly from very oversold levels.

Here are some key points for ATPG:

  • Current share price: $6.05
  • The 52 week range is $5.53 to $21.40
  • Earnings estimates for 2011: a loss of $5.38 per share
  • Earnings estimates for 2012: a loss of $1.51 per share
  • Number of shares short: about 19.3 million
  • Days to cover: about 7 days, based on average volume

Whirlpool Corporation (NYSE:WHR) is a leading maker of major appliances such as stoves, dishwashers, refrigerators and more. This stock was trading around $75 per share in July and has seen a huge decline over fears of a global recession. This stock is likely to remain under pressure for the next few months or until investors have a better idea of how the economy is doing. However, while it could drop further in the short term, it has strong rebound when the economy improves. The average price target is about $79 which gives this stock about 50% upside.

Here are some key points for WHR:

  • Current share price: $45.37
  • The 52 week range is $45.22 to $92.28.
  • Earnings estimates for 2011: $9.38 per share
  • Earnings estimates for 2012: $6.24 per share
  • Annual dividend: $2 per share, which yields 4.3%
  • Number of shares short: about 8.4 million
  • Days to cover: about 5 days, based on average volume

Ferrellgas Partners (NYSE:FGP) is a leading distributor of propane fuel nationwide. This stock has dropped almost 30% off the 52 week high and could be poised for a rebound. With the Winter season just getting started, revenues should be increasing soon and the stock price could follow.

Here are some key points for FGP:

  • Current share price: $19.40
  • The 52 week range is $10.20 to $29
  • Earnings estimates for 2011: 41 cents
  • Earnings estimates for 2012: 58 cents
  • Annual dividend: $2 per share, which yields 10.1%
  • Number of shares short: about 1.2 million
  • Days to cover: about 8 days, based on average volume

Data is sourced from Yahoo Finance and shortsqueeze.com.

Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: 6 Stocks With Imminent Short-Squeeze Potential