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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)
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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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