Three Potential Short Squeeze Plays
Stocks with heavy short interest are susceptible to short squeezes: massive, rapid upward moves in the price of shares predicated on some good news forcing short sellers to cover their positions.
Netflix's (NASDAQ: NFLX) recent run from about $100 per share to over $150 per share in just a few sessions may have qualified as a short squeeze. Shares of the Internet video streamer were heavily shorted prior to the company's earnings report in late January. When the company posted better-than-expected earnings, short sellers rushed to cover their positions -- sending shares into the stratosphere.
To be fair, however, stocks that are heavily shorted are frequently shorted for a reason. There may be questions regarding the company's accounting practices, or perhaps the company's business model appears to be in decline.
That said, here are three stocks that have been aggressively sold short, and may be ripe for a short squeeze:
JC Penney (NYSE: JCP) Just over 32% of JC Penney's shares had been sold short. Short sellers may be targeting the company on expectations that CEO Ron Johnson's turnaround strategy might be floundering.
The company has had go back on the “everyday low pricing” strategy it rolled out last year. Over the last few quarter, same-store sales have dropped, and the company has begun to bleed cash.
JC Penney is set to report earnings Wednesday. Should the company beat analyst expectations, shares might soar as short sellers rush to cover their positions.
Lennar (NYSE: LEN) Roughly one-fifth of the homebuilder's shares have been sold short. With Lennar, shorts may be targeting the company simply because its shares have run up too far, too fast. Since September of 2011, shares have nearly tripled.
The company reported earnings in mid-January, so there may not be any flash point event in the near-term. Still, if housing data beats expectations, Lennar shares could benefit.
Lululemon (NASDAQ: LULU) More than 25% of the athletic apparel maker's shares have been sold short. With a price-to-earnings ratio above 41, shares are certainly expensive. The company is also heavily exposed to the yoga trend -- perhaps a fad that could decline in popularity.
The company last reported earnings back in early December. Its next earnings date hasn't been announced yet, but will likely be in March. In January, lululemon offered guidance in line with expectations. Should earnings come in stronger than expected, shares could surge.
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