Many poorly performing companies are subjected to intense short selling, but when sellers are wrong, the shares can skyrocket. Which stock saw its share price increase more than +3,200% in less than one year with help from a massive "short squeeze"?

A.) Dendreon Corp. (DNDN)
B.) Microsoft (MSFT)
C.) Southwest Airlines (LUV)
D.) TASER International (TASR)
E.) Acorn International (ATV) 

Published: March 14, 2008

The correct answer is      (D.)  TASER International (TASR)

In 2003 and 2004, TASR was the fortunate subject of what's called a "short squeeze," and it helped catapult the stock over +3,200% in less than a year.

TASER International manufactures non-lethal weapons used by major police forces and private citizens. The company's pistols fire wires that pump electricity into a target's body, temporarily immobilizing that target. Back in early 2003, the stock was hovering around $4 per share and was not on most investors' radar screens. At times, nearly all of TASR's float was sold short -- that is, investors were betting on a decline in the stock. They were borrowing the stock first, selling it, and then hoping to buy it back later at a lower price.

But TASER began to release a few snippets of good sales news in the spring of 2003, and the stock popped to more than $8 per share by the end of April. The rally was bad news for the shorts -- many decided to cover their positions. But covering meant buying TASR on the open market, which increased demand and drove the stock still higher. By August, even the die-hard short sellers were feeling the pinch as the stock broke into the mid-$20s. Eventually, TASR hit a closing high of $135.02 (not adjusted for splits) thanks to the short squeeze.

Although it's impossible to guarantee gains of that sort, many of the biggest winners over short timeframes have shared a common characteristic -- they were heavily shorted just before their big runs. But there's no sense in buying a fundamentally weak company just because it has a heavy short interest. That's why StreetAuthority editor Paul Tracy and his staff conducted a stock search for sound firms with solid growth that are heavily shorted -- and thus have the potential to see a short squeeze in the coming months. Paul reveals this list of stocks in the latest edition of the StreetAuthority Market Advisor newsletter. To learn the names of these stocks, and to learn more about the Market Advisor newsletter, please visit this link.

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