The idea is, the shorts need to buy back (what? 30% + of the outstanding shares?) to cover their position, which, adding to those going long ANYWAY, should GREATLY outweigh the number of shares being sold....causing massive gain......How much gain is hard to say, but surf''s Green Mtn Coffee example should provide you with a point of reference....
Sentiment: Strong Buy
I buy companies that are heavily shorted but have good earnings. The example I am going to use is GMCR. I bought into the company in the low $20. When they came through with good earnings the short squeeze started and pushed the stock up to $28, then it pulled back and bounced around for a week. Then it shot up to $35 on investors just wanting to get in. Then when it broke $40, I was concerned we would have another pullback and I sold in the low $40's. Never got another chance to get back in as the stock went to $80. Short covering gets you the initial bounce, good fundamentals gets you the big gains. And that is what you are going to get with CLF.
To start......I don't think this will be a short squeeze (shorts fighting to cover at any price).
But let's just say that CLF posted surprise third quarter earnings of $3/share and raised the dividend to $1.50/year and guided next years earnings to be $12/share. At that point the debate would be is this stock worth $80 or $100 per share next year. Immediately, no longs would be willing to give up their shares for less than about $50. Large amounts of new money would be flowing in pushing the price up.
The shorts would see all of this and race to buy back the shares as soon as possible at the lowest price possible thus driving up the price very rapidly.
Listen.....I don't think anyone on this board sees this occurring. First of all CLF is not declaring earnings of anywhere near $3/share.
You are a good therapist for long longs who have been taking pains for the whole year. People who got in around and below $20 are thinking how to keep their gains and look ahead for more, but think about the folks who have been in above $30s - to recover their paper losses or take another painful year. My concern is that people with gains might be helping shorts to drag the price down.
Good points. I'm long mind you, but I see absolutely no way (unless of a buyout, which is NOT going go happen) that this stock gets squeezed due to earnings on Thursday. ABSOLUTELY NO WAY! There's just no way the shorts are going to give up on CLF understanding the potential headwinds in 2014-16.