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 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.

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 a good place to start.

The short list
China Shen Zhou Mining & Resources and China GenSheng Minerals (Nasdaq: CHGS) seemingly had little more than China and mining in common with rare-earth metals, but were bid up to stratospheric heights nonetheless. The whole sector has been pushed higher on the theory that not only will these minerals become more valuable as China limits their export, but the move will push the U.S. to encourage domestic mining efforts.

That, in turn, pushed up shares of U.S.-based rare-earth stocks like Rare Element Resources and Molycorp (NYSE: MCP), but there are a few problems there, too. For example, while Molycorp has rights to some rare-earth deposits, it doesn't have a shovel in the ground yet.

For Rare Element, the situation is even bleaker. Its rare-element property is the Bear Lodge property in Wyoming, a spit of land that -- it should be noted -- Molycorp, Hecla Mining (NYSE: HL), and Duval all previously drilled looking for rare-earth elements and subsequently abandoned. Investors are essentially driving up shares of a company that isn't producing anything (it has zero revenues) and has a very low probability of finding anything on the property it does own.

The shorts seem to be right on this one, and CAPS member gilboy7 says Rare Earth Elements is hardly worth taking the time to invest in: "This reverse merger stock has little prospect of ever making money and looks to m to be a short candidate for real money."

Although Rare Element's stock has given back about 14% from its highs, it still sits nearly four times higher than the spot it was trading at just six months ago. China Shen Zhou is more than 700% higher. Let us know in the comments section below whether you think it's worth mining either of these players.

Squeezed to death
Miner Rubicon Minerals seems to be caught in the pessimism over gold's recent weakness. Yet the weaker-than-expected jobs report released this morning shows the economy hasn't yet found its legs (ignore the unemployment rate for the moment; the number of people who dropped out of the labor force was staggering). While Fed Chairman Ben Bernanke is trying to have his QE2 policy take credit for a higher stock market, it really just proves we've got another asset bubble on our hands. These are forces that are going to push gold higher.

Rubicon Phoenix project's total potential reaching 13 million to 16 million ounces makes it a world-class mine if it pans out. Goldcorp (NYSE: GG) reported last month that its Red Lake produced more than 700,000 ounces of gold at very low cash costs. Look for Rubicon to see similar profitability. Mine the Rubicon Minerals CAPS page for even greater insights into the gold miner.

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!