Market Overview

3 Short Squeeze Candidates

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Stocks that are heavily shorted can be prone to short squeezes: periods of time when the share price rallies rapidly following a bit of good news. On Friday, shares of Pandora (NYSE: P) gapped up over 20% at the open, with the rally likely due to a short squeeze.

What other companies could be prone to such a phenomenon? AK Steel (NYSE: AKS), Barnes & Noble (NYSE: BKS) and Fusion-IO (NYSE: FIO) are all heavily shorted, and could see rapid share price appreciation if a bit of good news scares shorts into covering.

AK Steel (NYSE: AKS) AK Steel has a short interest near 25%.

This steel giant has been bleeding money now for several quarters. Shares have tumbled over 30% in the last few months, but shorts continue to bet against the company. AK Steel also faces other balance sheet issues, such as its pension obligations.

However, a global economic recovery could boost the demand for steel. Also, given that shares have fallen so significantly, it could be poised for a correction to the upside. Any move higher could be exaggerated by shorts covering their positions.

Barnes & Noble (NYSE: BKS) More than one-third of Barnes & Noble shares have been sold short.

With Barnes & Noble, short sellers are likely banking on the company going the way of its former rival Borders Books. Amazon has pressured Barnes & Noble, both with delivery and the growing ebook market. Barnes & Noble responded has responded with Nook, but the device has failed to generate the level as Amazon's Kindle.

Still, Barnes & Noble's founder Leonard Riggio has been planning a bid for the company's retail assets, and the Nook might be valuable to a tech giant like Microsoft. If Barnes & Noble looks poised to monetize its assets, shares could rapidly rally.

Fusion-IO (NYSE: FIO) Just a bit less than 30% of Fusion-IO's shares have been sold short.

The company is reliant on a handful of customers, and its business model is not very conducive to repeat sales. In addition, it faces the threat of bigger competitors entering its space.

However, the product is still considered to be industry-leading. And the company has been rumored to be a takeover target. Any hint of a legitimate sale could send shorts scrambling to cover their bets.

Posted-In: Long Ideas News M&A Trading Ideas Best of Benzinga

 

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