5 Stocks Ready to Soar on Bullish Earnings
WINDERMERE, Fla. ( Stockpickr) -- Short-sellers hate being caught short a stock that produces bullish results. When this happens, we often see tradable short-squeeze develop as the bears rush to cover their positions to avoid big losses. Even the best short-sellers know that it's never a great idea to stay short once a bullish earnings report kicks off a big short-covering rally.
This is why I scan the market for heavily shorted stocks that are about to report earnings. You only need to find a few of these stocks in a year to help enhance your portfolio returns -- the gains become so outsized in such a short timeframe that your profits add up quickly.
That said, let's not forget that stocks are heavily shorted for a reason, so you have to use trading discipline and sound money management when playing earnings short-squeeze candidates. It's important that you don't go betting the farm on these plays and that you manage your risk accordingly. Sometimes the best trade is to wait for the stock to break out following the report before you jump in to profit off a short-squeeze. This way, you're letting the trend emerge after the market has digested all of the news.
Of course, sometimes the stock is going to be in such high demand that you risk missing a lot of the move. That's why it can be worth betting prior to the report -- but only if a stock is acting technically bullish and you have a strong conviction that it is going to rip higher.
With that in mind, here's a look at several stocks that could experience big short squeezes when they report quarterly earnings this week.
My first earnings short-squeeze trade candidate is retail player Francesca's(FRAN) , which is set to report its numbers on Tuesday after the market close. This company operates a national chain of retail boutiques designed and merchandised. Wall Street analysts, on average, expect Francesca's to report revenue of $57.16 million on earnings of 16 cents per share.
If you're looking for a heavily shorted stock that recently triggered a near-term breakout that's trending strong heading into its report, then check out shares of Francesca's. This stock broke out on Monday above some near-term overhead resistance at $24.63 a share, and its trading just a few points off its 52-week high of $29.75.
The current short interest as a percentage of the float for Francesca's is pretty high at 12.6%. That means that out of the 25.7 million shares in the tradable float, 3.23 million shares are sold short by the bears. This is a low float high-short interest situation, so if the bulls get the news they're looking for this stock could easily short-squeeze big.