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.

Company

Shares Short

Jan. 31

Shares Short

Jan. 14

Change

Float

CAPS Rating
(out of 5)

Rubicon Minerals (NYSE: RBY  ) 1.3 0.9 38.6% 0.6% *****
PharmAthene (NYSE: PIP  ) 3.4 3.0 14.6% 14.8% **
General Moly (NYSE: GMO  ) 2.9 2.6 13.7% 4.5% *****

Sources: wsj.com. 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
Gold miner Rubicon Minerals was one of the companies with a prodigious increase in the number of shares sold short that I profiled during the last reporting period. Now, over the course of a month, those betting against the company have nearly doubled their short position and have been rewarded after Rubicon said it was amending its technical support for the Phoenix gold project.

It was only last November that Rubicon sparked a huge rally in its shares when it filed a report showing there was an inferred gold resource of 4 million ounces at Phoenix, a huge amount that would catapult the gold miner to the head of its class. But it wasn't all that surprising either since Goldcorp (NYSE: GG  ) has found rich veins in the area, too. So when British Columbia regulatory authorities wanted Rubicon to amend its report, investors got spooked and sent its shares falling. They're down about 15% from their most recent highs.

The company isn't concerned, however, believing the amendment -- which must be filed by the expert it previously hired to write the report -- will be more technical in nature than substantive.

CAPS member jerry0924 says he thinks the Rubicon find will eventually be proved equal to Goldcorp's: "From several news post that I have read I believe Rubicon's deposits will be similar to its neighbor Gold Corp. If it is this will a very profitable stock in 2 to 4 years."

Let us know in the comments section below or on the Rubicon Minerals CAPS page whether the miner still owns a heart of gold.

No small thing
After the Small Business Administration sided with privately held Chimerix that SIGA Technologies (Nasdaq: SIGA  ) was a business "other than small," no doubt short-sellers felt emboldened to bet that it would no longer qualify for the contract the government was handing out to supply the nation's smallpox antiviral stockpile. And if SIGA was going down, the value of PharmAthene's legal claims against it would carry less value, too. Hence the rising number of short-sellers here.

To recap, the lawsuit started in 2006 after SIGA backed out of a deal to merge with PharmAthene after reporting positive results for its own research and development efforts. The merger agreement had stipulated that if the deal fell through, the two would still go ahead with a joint marketing arrangement. After SIGA tried to cut PharmAthene out, the latter sued, and following a series of judicial rulings the court case is moving forward.

Shorts were probably surprised when the government rewrote the rules to essentially guarantee SIGA will win the contract. That puts PharmAthene's award, should it prevail in court, in a more lucrative position.

CAPS members generally believe in PharmAthene. Some 86% of those rating the biotech give it the benefit of the doubt in beating the market, but you can head over to the PharmAthene CAPS page and tell us if you think there's a chance it will lose. Then add the stock to your watchlist to gather all the news about its progress.

Squeezed to death
After getting caught up in the excitement of possible rare-earth minerals shortages, investors were bidding up shares of China Shen Zhou Mining & Resources  (NYSE: SHZ  )  and China GenSheng Minerals, stocks that had no right to be trading so high. General Moly was bitten by the bug, too, and like its Chinese counterparts -- which have tumbled 30% and 45%, respectively, since the start of the year -- General Moly's stock is down more than 20%. Molycorp (NYSE: MCP  ) , another supposed rare-earth play, has declined a more modest 9% so far this year.

What should prove valuable to General Moly is the stake it owns in two molybdenum and copper mines in Nevada. If and when it gets moving on them and starts extracting the metals from the ground, it could expect to receive a handsome payoff. In the meantime, though, it might continue to lag, at least until the next mania sweeps the market.

However, as I wrote last month, it's going to be some time before we see any real developments:

General Moly doesn't even have a shovel in the ground yet, so its run-up in relation to rare-earth metals restrictions is silly. The Mt. Hope mine won't begin production until 2013 at the earliest, and Liberty won't be producing until maybe 2015. Overly optimistic sentiment surrounding rare-earth minerals has bid up GMO to unrealistic levels and it's due for a return to earth.

Add General Moly to the Fool's free portfolio tracker to stay on top of how this hope-to-be miner performs in the future.

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!

The Fool owns shares of Rubicon Minerals. 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.


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