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.

These top companies on the New York Stock 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.

Company

Shares Short
Sept. 30

Shares Short
Sept. 15

% Change

%  Float

CAPS Rating
(out of 5)

Mahindra Satyam (NYSE: SAY  )

3.0

1.2

154.4%

NM

****

Huntsman (NYSE: HUN  )

6.7

4.3

56.1%

3.7%

*****

ReneSola (NYSE: SOL  )

2.0

1.4

50.4%

NM

****

Sources: wsj.com. Share counts in millions. NM = not meaningful.

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
It's not as though Indian IT player Satyam hasn't doomed shareholders already. Aside from that whole accounting fraud thing, it was unable to recover its momentum while Infosys (Nasdaq: INFY  ) and Cognizant Technologies surpassed it. As a result, it decided to yank its stock from the New York Stock Exchange, though shares will probably trade over the counter on the bulletin board sheets. Now, late to the party as ever, the Securities and Exchange Commission will probably launch an investigation into its fraudulent practices as Satyam announced it received a Wells notice from the regulatory agency.

The one-time IT high flyer was one of those mystery stocks that managed to maintain high CAPS support throughout the scandal, with 96% of those rating Mahindra Satyam saying it would ultimately outperform. The latest chapter is quickly drawing to a close, but the shorts are looking to drain the last few pennies from this stock.

Its business is business
Shorts might also be looking at the changing financial situation at specialty chemicals maker Huntsman, which has seen receivables grow at an alarming rate while its debt levels remain elevated. It's enough to make some think it's time to sell the stock.

So far, Huntsman has been able to confound the shorts and its shares are 30% higher than they were just a month ago. In fact, it's beating most of the CAPS chemicals sector, which is up around 15% over the past 30 day, while both DuPont (NYSE: DD  ) and Dow Chemical have risen 9% and 15%, respectively.

With 96% of CAPS members rating Huntsman also to beat the market, they at least have better reason to be hopeful here than they were with Satyam.

Squeezed to death
The solar sector has also been hot this summer. ReneSola is up over 80% over the past three months while JA Solar (Nasdaq: JASO  ) is up 60% and Trina Solar (NYSE: TSL  ) is up more than 40%.

But there may be a backlash building against Chinese stocks, including solar shops, because of the country's monetary policies. The U.S. Treasury Department is even pressing its counterparts at the International Monetary Fund to let currencies rise and fall as the market dictates. Monetary policies are quickly affecting trade policy, and the potential for global trade wars grows.

ReneSola has benefited from a tight wafer market and it's been steadily increasing its guidance for solar product shipments throughout the year. It expects second-half shipments to be as much as 650 megawatts, which when added to the 500.7 megawatts shipped in the first half, is slightly above the earlier increased guidance it gave of 1.0 gigawatts to 1.1 gigawatts.

CAPS All-Star member naughtyguy doesn't think the run-up can be sustained, but Seventyfive says it has the wherewithal to go further: "Solar stock with great earnings in the near future. If the solar industry takes off over the next few years, this company could be a leader!"

To determine whether ReneSola belongs in your portfolio, and to know how many similar businesses already occupy your stable of investments, be sure to add it into the Fool's free portfolio tracker, My Watchlist.

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 newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a stress-free disclosure policy.


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  • Report this Comment On October 15, 2010, at 2:18 PM, usalady wrote:

    Re: Receivables ? Using data from latest 10Q filing, HUN's Receivable turnover has IMPROVED from 7.4x as of 12/31/09 to 12.1x ( based upon annualized Revenue ). That's a 64 % improvement...and the Fool says " receivables are deteriorating " ??

    from toadarm2007 yahoo.com

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