magicJack VocalTec Ltd (CALL), Coinstar, Inc. (CSTR), RadioShack Corporation (RSH): Three Stocks That Could Benefit From a Short Squeeze

If Coinstar, Inc. (NASDAQ:CSTR) can show that its coffee kiosks have a future, or the company can continue to post solid earnings, shorts may be encouraged to cover, leaving open the possibility of a squeeze.

RadioShack faces existential questions

RadioShack Corporation (NYSE:RSH)’s problem really comes down to questions of its survival. Is there a place in the market for its small electronics shops?

Evidently, many traders don’t think so, as short interest is about one-third of the company’s outstanding shares.

Obviously, Amazon.com, Inc. (NASDAQ:AMZN) has been taking away customers from the bricks and mortar electronics stores for years. RadioShack Corporation (NYSE:RSH)’s rival Best Buyhas an embraced a new strategy, but with its tiny stores, RadioShack Corporation (NYSE:RSH) can’t hope to copy it. Increasingly, RadioShack has shifted to selling mobile phones, but that’s a particularly crowded market.

Most analysts are bearish on RadioShack Corporation (NYSE:RSH), with Goldman Sachs downgrading the stock to Sell back in March. Goldman noted that RadioShack’s entire business model was “challenged.”

It’s hard to assemble a bullish case for RadioShack Corporation (NYSE:RSH), but perhaps that is why it is most poised for a short squeeze. A surprising earnings beat could propel shares of a company most have long given up on.

Playing the short squeeze

As I noted, playing a short squeeze can be dangerous. Stocks with high short interest often have fundamental flaws, and these three companies are no different.

Yet, short squeezes can offer big gains in a short period of time. Ideally, those interested in such a strategy might want to use out-of-the-money calls to limit their losses.

The article 3 Stocks That Could Benefit From a Short Squeeze originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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