Beating Back the Short Attack

Because 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 shares short representing the largest percentage of a company's float. We'll combine that with the collective intelligence of Motley Fool CAPS to see which of these companies could make short work of short sellers -- according to Fools.

Company

Shares Short-Aug. 29

Shares Short-Aug. 15

% Change

% of Float

CAPS Rating (out of 5)

FirstFed Financial (NYSE: FED  )

9.4

12.6

(25.76%)

80.7%

*

Downey Financial

14.8

14.9

(0.85%)

78.2%

*

Tempur-Pedic (NYSE: TPX  )

44.4

34.0

30.78%

69%

****

MarineMax (NYSE: HZO  )

11.1

10.1

10.29%

65%

*

Life Time Fitness

19.3

19.2

0.44%

55.8%

***

Greenhill

7.8

7.9

(1.22%)

55.4%

*****

Beazer Homes (NYSE: BZH  )

19.9

19.9

(0.02%)

54.7%

*

Standard Pacific (NYSE: SPF  )

37.9

34.4

10.06%

53.7%

*

Hovnanian (NYSE: HOV  )

25.0

24.6

1.60%

49.6%

*

Landry's Restaurants (NYSE: LNY  )

4.9

5.0

(2.33%)

47.7%

*

Sources: wsj.com. Share counts in millions. Float is 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 115,000-strong CAPS community offers a good place to start.

The short list
A rally in the shares of troubled banker FirstFed Financial sparked some analyst debate on whether it was naked short-selling that was at the heart of the high levels of short interest. While there may have been a short-term bump, the stock has fallen again. CAPS member glenvar anticipated this bank's problems last December:

This is a major option ARM lender in Santa Monica California. The home prices are crashing, and the ARM's are adjusting upward. In other words people are not going to pay-they will walk away, and the Bank will own a lot of homes.

It probably doesn't surprise anyone to find three homebuilders on this list -- Hovnanian, Beazer, and Standard Pacific. CAPS member Jester112358 finds Hovnanian's huge quarterly miss an indication that things are worse than anticipated.

Huge 3-D quarter earnings miss of -$1.1/share, means this one is losing money at a faster rate than expected.

Top-rated CAPS All-Star TMFActionJackson thinks any buoyancy in Beazer's shares is because investors mistakenly believe the Fannie Mae bailout will help. He also references one of CAPS' more widely followed members.

I believe the short term pop in builders, especially bad builders is related to short selling and the fantasy that governments take over of Frannie will bring stability to the markets in quick and orderly fashion. Oh & Floridabuilder thinks this [is a loser].

Another industry you don't want to be in right now, according to top-rated All-Star Hassjo, is selling boats; he rates MarineMax accordingly. "Recreational boating not a great area with a tanking economy... underperform."

Don't sell yourself short
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then 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!

Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. There's no shortcut around The Motley Fool's disclosure policy.


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