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.

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.

Company

Shares Short

March 15

Shares Short

Feb. 28

Change

Float

CAPS Rating
(out of 5)

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!

First Solar is a Motley Fool Rule Breakers recommendation. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2011, at 1:50 PM, GMarkG wrote:

    Light Radio "CUBE" will blow away AMT's cell towers

    it's just a matter of time. Infracture time will

    be cut into fractions of the current time it takes

    to get approvals etc.... I don't believe that ALU will

    even need any special permits from the local governments unless the localities just want to collect money which is usually the case but these cubes are so small you'd need to look hard to find them. The design allows for instant changing or upgrading of software which is not possible with AMT's huge cell towers. Plus at the end of the day they will put out more, increase data, with advantages so far ahead of it's time that this stock should already be trading at $50.00 per share. JC should take a good hard look at the technology and how this one device will re-create the entire industry leaving Cisco,Juniper,Ericson etc... in the dust. Cisco should be looking to buy all or part of ALU being the entire company should be an American owned company anyway. How do we let another country buy our best minds in "BELL LABS"? Strategic patents unmatched brilliance why not sell Boeing to the Chinese too? You all get the message!! Yes, I own ALU and all of you out there should buy as much as you can of ALU today as you can since either ALU will make tons of money moving forward or they will be bought out by a better company or at least for the one division of BELL LABS!! Good luck. Just look at the time on my iPhone and ALU is selling for $5.74 once you the public have a few minutes to research the value of ALU's Light Radio's technology by tomorrow the stock should be, between $50.00 and $100.00 per share

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