3 Holiday Short Squeeze Plays

By Karen Rogers - September 14, 2012 | Tickers: GME, JCP, ZAGG | 0 Comments

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Selling a stock short is a lot like bungee jumping—it’s great so long as the line doesn’t snap or the market turn against you.

The problem with short selling is that sooner or later, no matter how terrible the company may be, the stock will bounce back up due either to a new bull rally or even a “dead cat bounce” before the stock resumes its downward march.  Either way, shorts will be frantically buying to close their positions in a “short squeeze”, an action hurting them even more by pushing the stock price up that much faster.

All the stocks analyzed here have more than 25% of the float held short, and have closed at a higher price for the past few weeks.  With the holiday season starting in October, all three companies should benefit from increased sales that should translate into a higher stock price.

It’s difficult to understand why traders insist on holding ZAGG (NASDAQ: ZAGG) short.  ZAGG holds the U.S. patent for their core product, Invisible Shield, which protects electronic devices with a clear film.  Who uses Invisible Shield?  Just Apple and Android, that’s who.  Invisible Shield is used on virtually every smartphone and tablet that leaves Apple’s and Android’s assembly line.  The company also designs and sells other smart device accessories and has partnered with other companies, including LogiTech, to sell their products in as many outlets as possible.

Why are ZAGG’s share prices increasing?  The company just unveiled a new line of accessories in Berlin about a week ago designed to appeal to gamers and iPad users.  ZAGGKeys Pro and PROPlus are designed to provide additional security to iPads through a magnetic locking system, can help prevent screen scratches and smudges, and provide additional backlighting for the screen.  iFrogz has the Caliber Stealth headset used for mobile devices, and the Caliber Axion headset for Xbox, PS3, Mac, and PCs.  All products will be available well before the holidays to maximize profits and give the stock price a boost.

GameStop’s (NYSE: GME) stock has been beaten up so much it’s more than ready to make a solid charge upward.  Fifty-eight percent of the float is held short, so shorts will be scrambling to cover should the stock start even a mild bull rally.

Game Stop suffers from the same affliction as Best Buy, Radio Shack, and other traditional retail stores, but the company is fighting back with increased digital sales and second hand smart device sales.  Game Stop continues to develop their online selection of new and used games, gaming consoles and accessory in an effort to woo new customers and keep current ones.  Analysts are looking for the stock to bounce up, and are estimating October 2012 revenue at $1.80 billion and January 2013 revenue at $3.65 billion.

When Ron Johnson agreed to come on as J. C. Penney’s (NYSE: JCP) new CEO, he couldn’t have imagined what lay before him.  The retailer’s ongoing saga of woes has 41.5% of their shares held short going into the holiday season.  Interestingly enough, there was a considerable amount of insider stock buying in August that’s spilled over into September.  What’s going on with Penney’s day-to-day operations that spur so much insider buying?  With the amount of shares currently held short, any increase in the stock price will have short frantically buying to cover.

Retailers are expecting brisk holiday sales this year through online and in store sales.  Short sellers may want to have a bailout plan in place should a holiday stock market rally give them a not-so-happy financial surprise.

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