5 Stocks Under 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.

This week, let's look at companies on the New York Stock Exchange with the largest decrease in the number of shares short. 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.

Sources: wsj.com. Share counts in millions.
*Shares outstanding, minus shares controlled by insiders, restricted stock, and shares held by 5% owners.

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 110,000-strong CAPS community just offers a good place to start. Yet investors seem to like most of these companies, as evidenced by most having three-star CAPS ratings or better.

Burning a hole in your pocket
After peaking at more than $23 a share, Solarfun Power has seen its shares drop by nearly 40% over the past month, undoubtedly leaving the shorts to cover their positions. While demand for alternative energy sources remains strong, there are some scary numbers surrounding the industry, as many companies post wide gaps between reported earnings and operating cash flows.

Moreover, at nearly $0.29 per kilowatt hour (kwh), solar remains far and away the most expensive form of electricity generation -- even after accounting for government subsidies. By comparison, coal, natural gas, nuclear -- even wind -- cost less than $0.07 per kwh. Will this prove a hurdle too high for the industry to surmount before it collapses under its own weight?

Most Solarfun investors don't think so, including CAPS player hansthered0. This player takes the company's ability to double revenue and increase profits as a sign that it will survive:

Solar power will dominate in the near future. This company doubled its revenue in the first quarter, and managed to also increase net profits by 50%. Those are extremely good signs for a company thats already in the right market.

Ringing up profits
Ignoring for a moment the activation debacle that marked the release of Apple's (NASDAQ:AAPL) new 3G iPhone -- where a 21-country global debut overloaded iTunes, leaving customers unable to activate their phones -- people won't turn to Research In Motion's (NASDAQ:RIMM) BlackBerry or a Nokia (NYSE:NOK) device as a result. These are loyal Apple customers. Broadcom, with an estimated $4 to $5 worth of chips in each iPhone, ought to realize increased profits from the pent-up demand -- even if that demand does result from delayed gratification.

Broadcom's stock-option backdating scandal is finally -- finally! -- behind it. That gives investors, including CAPS player PhillyDan, the feeling that the chip maker can focus on producing its industry-leading chipsets:

Broadcom will continue to be the leader in the development of chipsets for Ethernet and Wireless LAN connectivity. In addition they will also lead in 3G chipsets for cellular applications and in chipsets for Cable/DSL. With .... the stock option backdating issue behind them, Broadcom can now focus on maintaining and growing their technology leadership in the Networking and Cellular sectors. Having sold and marketed Broadcom products for several years with their first U.S. Distributor, I can attest to their technological leadership and strong marketing and sales prowess.

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 till it hurts, or short 'em till the sun don't shine? May the best argument prevail!