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Why I'm Bullish On The 4th Most Hated Stock

Timing a short squeeze can be tricky. Jump in too soon and you could be sitting on dead money until management improves its outlook. Wait too long and you risk missing most of the upside.

The most unloved companies are usually unloved for a reason -- whether thanks to declining sales or some other fundamental weakness. But when sentiment turns, the rush to cover short positions can provide swift profits for the well-positioned bull.

One of the most unloved companies in the market could be coming up on an inflection point. It's a leader in its industry but has been plagued by customer attrition over the past couple of years. Management has big plans for next year, though, saying the company should start booking a net gain in customers again. As a result, sentiment could be about to take a bullish turn.

The Tide Could Turn For This Unloved Leader In 2016

Only three other stocks in the S&P 500 are more heavily shorted than ADT Corporation (NYSE: ADT), which has 24.5% of its shares held short in the market. GameStop (NYSE: GME) almost perpetually tops this list as investors remain convinced it can't win over the trend in digital games. Meanwhile, Transocean (NYSE: RIG) and Chesapeake Energy (NYSE: CHK) have fallen victim to the plunge in oil prices.

With 41.3 million shares of ADT borrowed and sold short, it would take more than 20 days to unwind the positions on the average daily volume of 2 million shares -- or just one massive short squeeze could send the stock screaming higher.

ADT was spun off from Tyco (NYSE: TYC) in late 2012 and is the leader in North American home monitoring services with 6.7 million residential and business customers. The company has a dominant position in a highly fragmented market, controlling 27% against only 4% for its next closest competitor. Its scale and market position help drive profitability and present the opportunity to steal customers from smaller...