Credit Suisse put together a list of heavily shorted stocks that may rally if hedge funds are wrong on their bearish bets.
The firm aggregated holdings data from its hedge fund clients and then analyzed the stocks with its proprietary investing framework.
"A crowded trade presents risk to those holding short positions and in turn creates a potential opportunity for long investors to outperform in the event of a short squeeze," strategist Richard Curry wrote in a note to clients on Dec. 28. "Crowded shorts with attractive characteristics in the HOLT framework can present an opportunity for long investors."
HOLT is a quantitative Credit Suisse valuation model that measures a company's ability to generate cash flow, reinvest earnings at high rates of return and its valuation.
When a company with a high level of short interest releases positive fundamental news, there is high potential for a short squeeze rally in its shares, according to the strategist.
Here are 10 stocks on Credit Suisse's "most crowded shorts" report and the two companies on the list that rated the best under the HOLT framework.