3 Cheap Stocks with Short Squeeze Potential
10/29/2012 7:00 am EST
Beth Gaston, senior Editor and writer, at Schaeffer's Investment Research offers a trifecta of stocks that could experience the classic short squeeze.
Heavily shorted, outperforming stocks are intriguing from a contrarian perspective, and the bargain hunters among us can appreciate a cheap price tag as well. Fitting the bill on all three fronts are TiVo Inc. (TIVO), iStar Financial Inc. (SFI), and McEwen Mining Inc. (MUX).
Our weekly Singles Only screen (with data assistance from Finviz.com), found these three stocks and 24 more that could extend their year-to-date gains via short-covering activity.
After rising 27% off its mid-July nadir, TIVO shares are bobbing around double-digit territory for the first time in almost six months. During the past three months, the shares have outperformed the broader S&P 500 Index (SPX)—on a relative-strength basis—by 13 percentage points.
Short sellers, however, remain skeptical of the video-recording pioneer. About 10% of the stock's float is sold short, and it would take close to a week to cover all of the existing shorted shares. Short sellers may have already begun to pack it in, however, as the number of TIVO shares sold short pulled back almost 5% in the last reporting period.
SFI has reached a new annual high of $9.09 today, ahead of its third-quarter earnings release tomorrow morning. While recent results have been mixed—two positive and two negative surprises—the stock has momentum on its side. SFI has trounced the SPX by 21 percentage points in the last two months (in terms of relative strength) and is up more than 65% in 2012.
Close to 20% of the stock's float is currently sold short, resulting in a short-interest ratio of 19.5. In other words, it would take almost 20 sessions (roughly a month of trading) for the short sellers to exit their positions at the stock's average pace of trading. This is ample fuel for a significant short-covering rally.
Short-term options players are similarly skeptical; the stock's Schaeffer's put/call open interest ratio (SOIR) of 4.15 indicates that put open interest more than quadruples call open interest among options expiring in three months or less. This ratio is higher than all but 1% of the past year's worth of ratings.
Meanwhile, the stock is all-but ignored by Wall Street. Just one analyst currently follows the stock, awarding a "strong buy." Further attention from the brokerage crowd could inspire investors currently on the sidelines.
MUX has rallied more than 30% this year despite bearish activity on the part of short sellers and utter apathy on the Street. Currently, almost 13% of the stock's float is sold short, and it would take nearly 12 days for the shorts to exit their positions at the current average daily volume.
On the Street, MUX is ignored by all but one brokerage firm, despite its year-to-date climb and strong outperformance of the SPX—outpacing the index by nearly 51 percentage points in the last 60 trading days.
By Beth Gaston, Senior Editor and Writer, Schaeffer's Investment Research