Beating Back the Short Attack

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 look this week at companies on the New York Stock Exchange with the largest decrease in the number of shares short. By combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these firms Fools believe have the power to continue to make short work of short-sellers.

Company	Shares Short-April 30	Shares Short-April 15	% Change	Float*	% of Float	CAPS Rating (out of 5)
Countrywide Financial	76.4	99.0	(22.8%)	578.6	13.2%	*
AT&T (NYSE: T)	38.0	53.3	(28.7%)	5897	0.6%	****
National Oilwell Varco (NYSE: NOV)	12.1	24.2	(50%)	411.7	2.9%	*****
Washington Mutual (NYSE: WM)	184.3	195.4	(5.6%)	1051	17.5%	**
Citigroup	109.8	120.2	(8.6%)	5206	2.1%	**
Sybase (NYSE: SY)	11.7	21.7	(46.2%)	78.4	14.9%	***
Bear Stearns (NYSE: BSC)	22.9	31.4	(27.1%)	135.8	16.9%	*
Circuit City (NYSE: CC)	27.5	36.0	(23.6%)	166.9	16.5%	*
Bank of America	64.9	71.5	(9.2%)	4417	1.5%	***
Caterpillar (NYSE: CAT)	22.0	28.0	(21.5%)	614.6	3.6%	*****

Shares short data courtesy of wsj.com. CAPS rating courtesy of Motley Fool CAPS. Share counts in millions.
*Shares outstanding, minus shares controlled by insiders, restricted stock and shares held by 5% owners, as reported by wsj.com.

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 100,000-person CAPS community just offers a good place to start. Yet investors seem divided in their opinion of these companies, as only three have garnered four stars or better on their CAPS ratings.

Short circuited
Feeling like the belle of the ball these days, Circuit City is enjoying the amorous glances of not only movie rental chain Blockbuster, but its biggest shareholder as well, Carl Icahn. The electronics chain initially scoffed at the thought of being taken to the gala event of a merger by a chain that itself was seen as faltering, and refused to open its books for examination. However, when billionaire investor Icahn started batting his eyes and saying he might be willing to fill out Circuit City's dance card even if Blockbuster wouldn't -- or couldn't -- it relented.

The possibility that there might be two suitors for Circuit City's hand was probably too much for the short-sellers to bear. It's also enough for CAPS All-Stars like urmoney to think that there's little downside right now to seeing Circuit City's price improve.

Looking for a suitor, depressed stock price, not much downside, upside potential with any m&a activity ... taking the opportunity for an early buy in. Not much downside. Chart shows pent up demand after the established low, a bounce and 50% retracement, then a high tight flag tending to a breakout. I'm goin with the depressed price, asset valuation, potential big news and upside, pent up demand, and my good feeling.

On the other hand, investors like yomanlyman think the competing bids don't necessarily make Circuit City attractive: "Being bought out by down and out Blockbuster doesn't exactly make this stock attractive, although it does make Best Buy look better."

Speak up
You've heard from the CAPS community. Now it's your turn to have your say. Share your views with the CAPS community: Squeeze 'em til it hurts, or short 'em til the sun don't shine? May the best argument prevail!