Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short-sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.
Let's examine this month's list of companies on the American Stock Exchange with the largest short positions. We'll then consult the collective intelligence of Motley Fool CAPS to see which ones Fools believe have the power to make short work of short-sellers.
|
Company
|
Shares Short Dec. 14
|
Shares Short Nov. 30
|
% Change
|
Total Shares Outstanding
|
Dec. % Total Outstanding
|
CAPS Rating (out of 5)
|
|
Grey Wolf (AMEX: GW )
|
26.6
|
25.2
|
5.47%
|
183.2
|
14.52%
|
*****
|
|
On2 Technologies (AMEX: ONT )
|
17.7
|
15.8
|
11.84%
|
159.8
|
11.08%
|
***
|
|
Rentech (AMEX: RTK )
|
14.0
|
14.5
|
(3.18%)
|
165.6
|
8.45%
|
**
|
|
InterOil (AMEX: IOC )
|
11.1
|
10.6
|
4.12%
|
29.9
|
37.12%
|
*
|
|
Oilsands Quest (AMEX: BQI )
|
10.8
|
11.2
|
(4.06%)
|
104.9
|
10.30%
|
****
|
Shares short data courtesy of wsj.com. CAPS Rating courtesy of Motley Fool CAPS. Share counts in millions.
Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our CAPS community of 80,000 investors offers a good place to start.
Howling at the moon
Although it's an oil and gas drilling company, Grey Wolf doesn't actually sell the product extracted from the ground. Rather, it provides drilling crews to oil rigs, and lately, the number of rigs in operation and the dayrates charged have been declining. Increased costs have put a cap on any profits the company's been earning. Perhaps the shorts believe that oil can't maintain its $100 price and natural gas prices will weaken further. That would cause dayrates to slide further, affecting the company's ability to meet growth projections.
Nearly 700 investors on CAPS have shared their opinion of Grey Wolf, and 96% of them believe it will outperform the market. The bullish opinion is perhaps best summed up by the thesis that oil isn't going to get cheaper and that natural gas prices will rebound. Those are some of the reasons top-rated All-Star SmokeyJoeSmokin gave for rating Grey Wolf an outperform just two months ago.
This stock is dirt cheap. The market has priced this stock as though it has no growth potential. I expect [natural] gas to make a real rebound in the next couple of years and GW is well positioned to take advantage of that.
In his top bull pitch from early in October, CAPS player Harry0925 said he also sees an increase in natural gas prices because reserves are harder to come by. Yet it's Grey Wolf's financial position that cements the deal for him.
NG is becoming harder and harder to find in the mature U.S. and Mexican markets ... Over time, NG will move in tandem with crude oil. This has not been the case recently, and I believe that this is going to change ...
Frankly any company in this space should do well over time, but GW is my favorite because of its financial position. They have some net cash and recently purchased two 1500hp rigs for 80 cents on the dollar and immediately entered them into 3 year term contracts ... At these prices, the market believes GW's earnings will fall off of a cliff in the near future. I simply don't believe that will be the case.
Speak up
You've heard from a couple of CAPS players -- now it's your turn to have your say. Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine. May the best argument prevail.
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