Are These Stocks Poised For A Short Squeeze?

Over the weekend, I used the trusty E-Trade stock screener to attempt to identify some names that are poised for a short squeeze.  When a stock is shorted, the investor "borrows" the stock at a high price, with the intent of "buying" it back at a lower price.  When a stock with a high short percentage of the float begins to move higher, the shorts begin to lose money and thus get "squeezed" into buying the stock back to cover their losses.  As a stock begins to move higher, the move is exacerbated by such unnatural buying.

Here's the screen I used to identify where the opportunities may lie:
Criteria - S&P 500 Membership
Logic - I want stocks that are at least fairly liquid.  That is, I want them to trade regularly and in a relatively high frequency, this makes getting in and out much easier.

Criteria - Beta > 1
Logic - As you know if you read this blog, I believe the market is going to trend higher in the time ahead.  Beta is a measure of how a stock moves in relation to the market.  A Beta of 1 indicates the stock will move in correlation to the market, < 1 indicates the moves will be less than the market, and > 1 means the stock will move more than the market.  For instance, if a stock has a Beta of 1.5, and the market moves up 10%, we can expect our stock to move up 15%.  By choosing a Beta of > 1, I am trying to pick stocks that are really going to move once squeezed.

Criteria - Short Percentage of Float > 25%
Logic - This means that a quarter of the float, or the percentage of all outstanding shares that are traded by the public, is currently being held short.  Meaning, there are a large percentage of people who believe the stock is going down who can potentially be squeezed out if the market moves higher.  A high short percentage means the squeeze upward will be even more severe.

Criteria - Price/Cash Flow Ratio < 10
Logic - If you've read my Dow Dogs post from January, you know how I feel about this metric to find undervalued companies.  I am not going to bore you with the explanation again.


Results (Data per www.finviz.com, as E-Trade went down for maintenance during this writing):

Cabela's Incorporated (CAB), $16.72,  Retail (Specialty)
   Short Interest - 27.18%
   Beta - 1.09
   Price/Cash Flow Ratio -2.27


Children's Place Retail Stores, Inc. (PLCE), $47.71, Retail (Apparel)
   Short Interest Ratio -24.79%
   Beta - 1.12
   Price/Cash Flow Ratio - 6.67


True Religion Apparel, Inc (TRLG), $19.07, Apparel/Accessories
   Short Interest - 25.07%
   Beta - 1.71
   Price/Cash Flow Ratio - 3.95


I am going to keep track of these names, and see how the do over the coming weeks.  Maybe this will be a strategy worth following in the future, maybe not.  I will write back with the results at a later date.