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 Nasdaq 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
Dec. 15

Shares Short
Nov. 30


Change

%  
Float

CAPS Rating
(out of 5)

Smart Technologies (Nasdaq: SMT  )

5.3

3.0

75.3%

12.3%

***

SodaStream International (Nasdaq: SODA  )

1.7

1.2

44.0%

NM

*

China MediaExpress (Nasdaq: CCME  )

4.8

3.5

36.5%

48.6%

***

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
While the education market has some investors thinking Smart Technologies' will learn to grow its whiteboard business in the space, cash-strapped state governments have others thinking it's right that the stock is trading at almost half its IPO price. CAPS investor sdwcheney recently noted that IT spending in education is not a top priority:

Smart Technologies will be going down as long as the states are cutting education budgets. Most schools are using all of their money for teachers and building upkeep, and are lucky to get budget for that.

Even if it were receiving the attention it deserves, education IT spending doesn't appear to be a hot growth market anyway. The industry researchers at Gartner estimate that worldwide spending on hardware and software in educational IT market will grow from $16.5 billion in 2009 to $18.6 billion in 2012. That's just a 12% increase over three years, which is hardly a scorcher.

While FutureSource Consulting suggests interactive whiteboard technology spending will grow at a more robust 19.5% rate annually, Smart Technologies may have to follow the lead of wholesale distributor Tech Data and expand more broadly into the enterprise and government markets. Tech Data distributes a wide range of tech products. Its third-quarter profit swelled 17%, while Smart saw a 22% decline in earnings.

CAPS All-Stars are unanimous in believing the educational IT specialist will outperform the market, but let us know on the Smart Technologies CAPS page whether you think it makes the grade.

I'll drink to that!
SodaStream is another recent IPO that's well off its highs and is tackling a market that's a tough nut to crack, but is making your own soda at home a growth industry? Considering your beverage is instantly at the ready, it's not like a home brewery where you've got to let the barley, malt, and yeast ferment. SodaStream's products make a carbonated drink that you dispense right on your kitchen counter.

The analogy has been made that it's more akin to the single-serving coffee makers from Green Mountain Coffee Roasters (Nasdaq: GMCR  ) than to brewing your own Samuel Adams knock-off in the basement. Despite owning a SodaStream system, the Fool's Rick Munarriz isn't convinced yet it's up to the challenge of matching up to a cup of joe, let alone taking on Coca-Cola (NYSE: KO  ) or PepsiCo (NYSE: PEP  ) . SodaStream doesn't offer a better value proposition than Coke and Pepsi, nor does it, according to some reports, offer a better soda. In contrast, Green Mountain does offer a better and more convenient value than premium brews.

The third quarter gave SodaStream some fizz with revenue 52% higher, and after some celebrity endorsements heading into the holiday season (though I'm not sure Dr. Oz is the next Oprah), we may see sales pop further. The machines are being sold at retailers across the country, and if Wal-Mart were to pick it up, the sales jolt would be a shot like a nose full of carbonation. Margins, though, would likely take a hit.

However, CAPS member oldmanarchitect isn't yet ready to make SodaStream a long-term holding.

I think [SodaStream] has will have a great fourth quarter, and possibly a great 1st/2011. After that, I will likely sell. It is hot right now and will sell great this holiday season. Lots of early residuals as people remain excited (1st/2011), but this is not Green Mountain. I saw someone on another board compare the product to a "bread maker"-I think that is appropriate, and that it will be short lived hype.

If the soda maker is still too new for you, track its progress by adding it to your watchlist and have all the Foolish news and analysis aggregated for you in one place.

Squeezed to death
Short sellers have been attacking ad house China MediaExpress again after a scorching run-up in November. But despite the shorts piling on again, the media company's stock sits almost 30% below its 52-week high and it's trading for just six times forward earnings. Compared to Chinese rivals Focus Media at 17 times future profits and VisionChina Media (Nasdaq: VISN  ) at a nosebleed 232 times, they may have attacked the wrong ad house this time.

CAPS member SqueezePort looks at how many shares are short and figures a squeeze will burn the sellers again. Add China MediaExpress to the Fool's free portfolio tracker if you think it's worth climbing on board this express.

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!

Coca-Cola and Wal-Mart are Motley Fool Inside Value picks. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers choice. Coca-Cola and Wal-Mart are Motley Fool Global Gains selections. Coca-Cola and PepsiCo are Motley Fool Income Investor selections. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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


Read/Post Comments (2) | Recommend This Article (11)

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  • Report this Comment On January 03, 2011, at 5:30 PM, ETFsRule wrote:

    CCME is probably the best bargain in the world right now.

  • Report this Comment On January 06, 2011, at 2:38 PM, jestem wrote:

    Bears are hell-bent on crushing SODA. It would be nice to see them crushed if SODA was to be acquired for like $40/share by KitchenAid or someone else.

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