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 American Stock Exchange had some of 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
Nov. 30
|
Shares Short
Nov. 15
|
% Change
|
% Float
|
CAPS Rating (out of 5)
|
| PharmAthene (NYSE: PIP ) |
2.9
|
1.3
|
115.3%
|
12.0%
|
*
|
| Orient Paper (NYSE: ONP ) |
1.2
|
0.6
|
82.9%
|
9.2%
|
***
|
| North American Palladium (NYSE: PAL ) |
1.1
|
0.7
|
50.4%
|
1.2%
|
****
|
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
Any biotech will face risks, and seeing short-sellers pile into a struggling stock isn't necessarily a surprise. But when it comes to PharmAthene, just one big event explains the surge in shares sold short: A lot of speculators think the company will lose its court case against SIGA Technologies (Nasdaq: SIGA ) .
Recently, I cautioned that PharmAthene bulls got prematurely excited by a judge's recent ruling in a summary judgment case brought by SIGA. While the judge denied SIGA's motion, the ruling didn't affirm that PharmAthene had proven its case -- just that there was sufficient evidence for the case to proceed to trial.
By the same token, short-sellers shouldn't be too hopeful, either, since there is strong evidence in PharmAthene's favor. The trial starts in January, and the judge expects to rule by July; damages could run as high as $1 billion if SIGA loses. A loss for PharmAthene would be a significant setback, but since it still has several drugs in the pipeline, all would not be lost.
CAPS member Rebuta says there's enough hype surrounding the trial to keep the stock elevated. Let us know on the PharmAthene CAPS page whether the shorts will finally capitulate and send shares soaring again.
Squeezed to death
Questions about Chinese paper products company Orient Paper continue, despite an internal -- though independent -- audit that cleared the company of fraud. Chinese small caps like RINO International, China Sky One Medical, and Fuqi International (Nasdaq: FUQI ) are operating under a cloud of suspicion about their finances. The Nasdaq exchange finally delisted RINO because it admitted it lied about its situation; the company now trades on the pink sheets.
Many investors remain dubious about Orient Paper. While the audit committee cleared the paper maker on a number of fraud allegations, it didn't completely exonerate it. Orient's chairman, for example, had claimed that he disposed of virtually all of his interest in a supplier back in 2004, but the committee found that he didn't actually do so until a month after the allegations were raised. It also found discrepancies between the sales reported by Orient and those reported by its customers, based on the reports they filed with Chinese regulators. The committee said it wasn't in a position to evaluate those reports -- hardly a full-throated absolution.
Highly rated CAPS All-Star chiro85 apparently feels that enough of the claims against Orient Paper were unfounded to allow the company to once again move forward. Roughly 94% of all the members rating the paper-products producer believe it will outperform the broad market averages.
If there's still too much risk for you, keep track of Orient's progress by adding the stock to your watchlist, and having all our Foolish news and analysis on the company aggregated for you.
Coming up short?
It's not legal questions or fraud charges that have short-sellers queuing up against North American Palladium. The precious metals miner has simply more than doubled in value over the past year, and it's up by more than half in the past three months alone. NAP is not alone; Stillwater Mining (NYSE: SWC ) has had a similar run-up in value, even though shares short have increased by only 4% in the latest period.
Simply betting against a stock you think has come too far, too fast is no way to invest. NAP returned to profitability in the third quarter, and palladium prices are at record highs. It bought a rich gold mine from Agnico-Eagle Mines (NYSE: AEM ) earlier this year, and CAPSnGAIN says the trends for precious metals seem strong:
In my mind, Palladium is to Platinum as Silver is to Gold. So, as long as Gold rises, or the economic recovery continues, I'd expect Pd to appreciate.
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!
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