Sometimes the short term problems of a good company cause investors to overreact, and short sellers expecting to see greater declines in share prices are increasing their short positions. Companies with high short interest that are debt free and have solid fundamentals can move up very quickly as traders with open short positions move to cover. A situation called short squeeze is a common occurrence with companies with a high short ratio. Short squeeze occurs when a stock price increase triggers a rush of buying activity among short sellers.
Companies with zero debt and excess reserves can continue to grow and gain market share through mergers and acquisitions. I searched for very profitable companies with zero debt and high short float ratio that pay rich dividends, these kinds of stocks have a big upside potential.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
1. The stock is included in one of the following indexes: S&P 500, S&P 400 MidCap or S&P 600 SmallCap (American stocks).
2. Dividend yield is greater than 3.0%.
3. Total debt to equity is zero.
4. The forward P/E is less than 14.
5. Short float ratio Is greater than 10%.
After running this screen on October 29, 2012, I obtained as results the 5 following stocks:
|Company||Symbol||Last price||Market Cap ($millions)||Trailing P/E||Forward P/E||PEG Ratio|
|j2 Global, Inc.||JCOM||29.47||1,340||12.18||11.29||1.39|
|PetMed Express, Inc.||PETS||10.75||215||13.61||13.61||1.81|
|True Religion Apparel||TRLG||25.84||666||13.97||12.86||0.70|
Questcor Pharmaceuticals, Inc.
Questcor Pharmaceuticals, Inc. is a biopharmaceutical company it provides prescription drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications.
Questcor Pharmaceuticals has a very low trailing P/E of 10.03 and a very low forward P/E of 6.40. The PEG ratio is also very low at 0.30. The price to free cash flow for the trailing 12 months is very low at 9.22. The average annual earnings growth for the past five years has been very high at 31.12%, and the average annual earnings growth estimate for the next five years is also very high at 33%. The short float ratio is very high at 44.47%. The company is trading 55.6% below its 52-week high, and has 71% upside potential based on the consensus mean target price of $44.63. The forward annual dividend yield is very high at 3.10%. On September 19, QCOR stock dived nearly 50% over concerns that insurance companies were moving to limit coverage of the company's primary revenue driver, Acthar. The sell-off was triggered by revelations that Aetna had recently imposed some restrictions. Nevertheless most analysts tracking Questcor Pharmaceuticals still like the stock; among the eleven analysts covering the stock, three rate it a strong buy, three rate it a buy and five rate it a hold. The company used $58.1 million in cash to repurchase 1,484,300 shares of its common stock in open market transactions, at an average price of $39.15 per share, during the third quarter of 2012. On September 28, 2012, the company announced that its board of directors increased the company's common stock repurchase program authorization to 7 million shares. All these factors make the stock quite attractive.
GameStop Corp. operates as a video game retailer. It sells new and used video game hardware; physical and digital video game software; and accessories and other products.
GameStop Corp. has a very low trailing P/E of 9.79 and a very low forward P/E of 6.71. The PEG ratio is also low at 1.10. The price to free cash flow for the trailing 12 months is very low at 5.62 and the short float ratio is very high at 36.16%. The forward annual dividend yield is very high at 4.30% and the payout ratio is 0.21. The total cash of the company is $329 million, which is equal to about 12% of its market cap, and there have been net insider purchases during the last six months of 17,190 shares. GME stock looks quite attractive.
j2 Global, Inc.
j2 Global, Inc. provides cloud services to businesses of various sizes through the Internet worldwide.
j2 Global has a very low trailing P/E of 12.18 and a very low forward P/E of 11.29. The PEG ratio is also low at 1.39. The price to free cash flow for the trailing 12 months is quite low at 12.32 and the short float ratio is very high at 23.79%. The forward annual dividend yield is very high at 3.0% and the payout ratio is 0.36. JCOM is scheduled to report its third-quarter 2012 financial results on November 01, and the results will probably affect the short-term stock price.
PetMed Express, Inc.
PetMed Express, Inc. market prescription and non-prescription pet medications, health products, and supplies for dogs and cats in the United States.
PetMed Express has a low trailing P/E of 13.61 and a low forward P/E of 13.61. The PEG ratio is 1.81. The short float ratio is very high at 25%. The forward annual dividend yield is very high at 5.60% and the payout ratio is 0.76. On October 22, PetMed Express reported Q3 results that were better than market expectations, PetMed Express beat slightly on revenues and beat expectations on earnings per share. All these factors make the stock quite attractive.
True Religion Apparel Inc.
True Religion Apparel, Inc. designs, develops, manufactures, markets, distributes, and sells apparel in North America, Europe, Asia, Australia, Africa, and South America.
True Religion Apparel has a low trailing P/E of 13.97 and a low forward P/E of 12.86. The PEG ratio is very low at 0.70. The average annual earnings growth for the past five years has been quite high at 14.30%, and the average annual earnings growth estimate for the next five years is very high at 20%. The short float ratio is quite high at 10.08%. The company is trading 30.5% below its 52-week high, and has 17.5% upside potential based on the consensus mean target price of $30.40. The forward annual dividend yield is very high at 3.10% and the payout ratio is 0.42. TRLG is scheduled to report its third-quarter 2012 financial results on October 30, and the results will probably affect the short-term stock price.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.