Do the Shorts Know Something You Don't?

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.

The following top companies on the Nasdaq exchange had the largest percentage increase in shares sold short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers:

Sources: wsj.com and 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 170,000-strong CAPS community offers just such a good place to start.

The short list
Natural gas plays are increasingly getting their hands dirty by buying up oil assets. SandRidge Energy (NYSE: SD), for example, purchased Arena Resources for its oil reserves, and Linn Energy has also bought up a number of properties since July. These deals show the value that oil reserves and production can command in the marketplace today.

With a deepwater drilling ban wreaking havoc on offshore drillers large and small, from Transocean to Hercules Offshore (Nasdaq: HERO), onshore exploration will command a premium.

With 97% of CAPS members rating Linn Energy to outperform the broad market averages, our community seems to believe there's little downside risk left in the natural gas side of the business, and plenty of upside in oil. And for CAPS members howbertr and brantski, there's the added benefit of Linn's dividend, which currently yields 7.8%.

Its business is business
After crashing on disappointing earnings news, business services provider Vistaprint has seen its shares recover slighty, as hopes for a buyout -- rumors include everyone from Microsoft to Staples (Nasdaq: SPLS) -- buoy investors. One would imagine the shorts are expecting the speculation to fall apart, and the operational issues that have plagued the company to win out.

But there's some sense in Staples making an offer. The office-supply retailer has been building up its copy-print business with stand-alone stores here at home and internationally. Even FedEx, another potential rumored buyer, might want to fortify its office and print services business, which suffered a nearly 10% revenue drop over the past year. Yet rumor is rumor until proven otherwise, and the shorts have this one in their sights. The Motley Fool, however, considers the cave-in of Vistaprint's stock an awesome buying opportunity.

Squeezed to death
Shorts must believe that sky-high commodities prices are a bubble. Gold, although it dipped a little today on profit-taking, is still north of $1,300 an ounce. Silver hit a 30-year high of $22.13 today. Amid fears of future inflation, demand for precious metals has soared. But what if the doomsayers are wrong?

Although signals are decidedly mixed right now, pockets of development definitely reveal a recovery starting to take hold. In such a situation, precious-metals prices could correct, and do so quickly. There's also Warren Buffett's famous maxim: Be fearful when others are greedy. With almost everyone on board the gold and silver bandwagon, it might be time for you to get off.

Pan American Silver and Silver Wheaton (NYSE: SLW) trade at some of their highest levels of the year, but with good reason. Pan American, along with Silvercorp Metals, posted record quarterly production numbers, while Silver Wheaton saw record earnings and sales volume last quarter. Armageddon doesn't need to arrive for silver and gold to go even higher. If they do continue to rise, shorts could get caught in a silver squeeze.

CAPS All-Star member DarthMaul09 says the shorts are about to be crushed:

Silver's rise does not appear to be slowing, so did JPM exit its short position on silver or is the price move too strong for JPM to influence? The longer the silver rally goes on, the more buying momentum will develop that will crush the remaining short positions. Absent an institutional short seller, will the gold:silver ratio drop significantly below 60? It has been much lower in the past. Even if the ratio dropped to just 50, with gold at $1300, then silver could climb to $26, which would be a 20% rise over the silver price today. SLW may be the best silver play, but other profitable silver miners will likely make some significant gains as well.

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!