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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.
In the chart below are companies with the largest percentage increases in shares 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.
|Alcatel-Lucent (NYSE: ALU )||84.0||44.7||88.3%||3.6%||**|
|MetLife (NYSE: MET )||28.9||12.5||131.4%||3.8%||***|
|ReneSola (NYSE: SOL )||7.9||4.0||95.9%||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
Recently, Alcatel-Lucent upgraded its software applications so that base stations carrying 3G wireless signals will be better able to handle the throughput. Operating profits for the telecom specialist this quarter surpassed Wall Street's expectations, and even though the shorts apparently think the big jump in its shares is too much, too soon, management expects growing 3G efforts will continue to improve its profit picture this year.
Even better for Alcatel is the merger agreement between AT&T and T-Mobile, since it and LM Ericsson (Nasdaq: ERIC ) are the two largest equipment providers for the carrier, while Alcatel is also a major infrastructure supplier of T-Mobile. However ephemeral the supposed synergies between the two carriers turn out, Alcatel-Lucent seems to be the biggest winner here.
Mobile data traffic will grow at a compounded annual rate of 92% through 2015, according to Cisco. There's a reason CAPS member VenCarPor sees Alcatel catching fire: "They are the underlying infrastructure for the ever growing popular wireless bug out there!!"
Let us know in the comments section below or on the Alcatel-Lucent CAPS page whether it's going to come up short in the AT&T deal.
No small thing
It didn't take long after the earthquake rocked Japan for insurance stocks to collapse. While property and casualty insurers would obviously be affected, the early bet that life insurance providers would also be hard hit with claims from rising death tolls was a bit premature. The exposure is probably widely dispersed over many insurers, and analysts now see MetLife, Prudential Financial (NYSE: PRU ) , and American International Group (NYSE: AIG ) actually benefiting from the disaster as it reinforces the importance of life insurance in one's overall financial planning.
This won't come about immediately, but later on this year the insurers should begin to see the benefit from the expected uptick in business. That would indicate that any softness their stocks still possess -- all other things being equal, obviously -- would be a potential buy signal. CAPS member dpid saw the sell-off as an opportunity, and Wall Street is unanimous in its belief MetLife will go on to beat the broad market averages.
You can keep track of all the developments at MetLife by adding it to your watchlist.
Squeezed to death
It looks like the shorts had it right when it came to ReneSola. Shares have fallen 22% since the end of February even as other solar stocks have soared in the wake of Japan's crisis. Alternative energy stocks took off as the future of nuclear energy became doubtful. But for ReneSola, the threat of a new, muscular competitor in wafers, in the form of polysilicon maker GCL-Poly, apparently overshadowed whatever it might have had to say about results, though less than robust guidance played a part, too.
Like ReneSola, First Solar (Nasdaq: FSLR ) and Yingli Green Energy saw shipments surge late in the quarter, and with polysilicon prices on the rise, margins could be pressured again. CAPS member Jonebone says the pullback offers a great entry point for ReneSola, as it is bound to be a leader in China's solar market. Add the stock to the Fool's free portfolio tracker to stay on top of its progress.
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!