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 companies on the Nasdaq stock exchange are among those 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 31

Shares Short

March 15

% Change

% Float

CAPS Rating
(out of 5)

Majesco Entertainment (Nasdaq: COOL  ) 1.1 0.5 102.1% 3.2% ***
Abraxas Petroleum (Nasdaq: AXAS  ) 11.4 6.0 88.8% 15.0% *
Expedia (Nasdaq: EXPE  ) 23.2 13.9 66.9% 11.9% *****

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
It's understandable why short-sellers want to target Majesco Entertainment. The video game maker is riding high on sales of Zumba Fitness, the Brazilian aerobic exercise program for the Wii, and has plans to launch a number of titles for the Nintendo 3DS as well as for social-media outlets like Facebook. Its stock is at 52-week highs.

No doubt short-sellers are looking at the general drop in video game sales, which was much steeper than expected. According to the market researchers at NPD Group, overall retail software sales fell 16% in March, worse than the 8% to 10% that had been expected.

What they're missing, though, is that Majesco's target market, specifically the 3DS platform, had a fundamentally sound launch. Despite having a $100 higher price point and getting launched during a nonholiday period, the 3DS sold only 100,000 units fewer than the older DS did during the start of the Christmas season. And Zumba Fitness was the top-selling game in the U.K. for the second consecutive week, ending April 16. It's still enjoying wide popularity.

As highly rated CAPS All-Star  IBDvalueinvestin points out, Zumba Fitness remains a top seller in many places. While nearly one in five CAPS members see it underperforming the market averages, you can play the game on the Majesco Entertainment CAPS page and let us know whether you think it's fit enough to succeed.

No small thing
Even though its fourth-quarter financials came in below analyst expectations, Abraxas Petroleum reported a loss that was narrower than a year ago. It's steadily moving to regain profitability and as many others before it have done, notably Chesapeake Energy and EOG Resources (NYSE: EOG  ) , Abraxas is focusing more on its oil reserves. It will be focusing first on Texas oil holdings and then on the Williston Basin and Wyoming. It has stakes in the growing Niobrara region, as well as the more established Bakken play.

Wall Street is unanimous in its opinion that that stock will go on to outperform the broad indexes, and 97% of the nearly 700 CAPS members rating the energy play agree. Add it to your watchlist to see whether it can hit a gusher still.

Squeezed to death
The announced spinoff of Expedia's media and advertising division, TripAdvisor, has investors enthused about the online travel agent's prospects. Accounting for 15% of revenues and more than a third of Expedia's profits, TripAdvisor looks like it could be a winning investment on its own and should allow the OTA to return significant value to shareholders. Yet the competition from Google's (Nasdaq: GOOG  ) ITA Software acquisition means there will be a tough fight in the space, making this a good time for Expedia to shed TripAdvisor.

Although fellow OTA Orbitz Worldwide (NYSE: OWW  ) remains locked in a pitched battle with American Airlines parent AMR (NYSE: AMR  ) over the airline's desire to route fare bookings through its in-house reservation system, Expedia reached a tentative agreement with the airline earlier this month.

While analysts view Expedia favorably, just 80% of the CAPS members rating the OTA think it can beat the market. Add the stock to the Fool's free portfolio tracker to find out if it's able to take flight.

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!

Google is a Motley Fool Inside Value pick and a Motley Fool Rule Breakers pick. Nintendo is a Motley Fool Stock Advisor selection. The Fool owns shares of Google. Alpha Newsletter Account, LLC owns shares of Chesapeake Energy. 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 (3) | Recommend This Article (2)

Comments from our Foolish Readers

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 April 27, 2011, at 5:28 PM, Natolx wrote:

    What are your thoughts on ZAGG? As of the April 15th numbers released today it has a whopping 53% short interest with 8.7 days to cover.

  • Report this Comment On May 04, 2011, at 7:35 PM, frank4159 wrote:

    it's easier to see price movement(down) on a shorted stock. Even with only a little momentum, shorts can be alerted to negative news article about to be posted, in time to heavily short more and thus rake in on the article. Herb Greenterd did this for years , in cahoots with big-time shorts. And apparently never got caught. Havn't seen his name in the financial news lately, could it be?

  • Report this Comment On May 08, 2011, at 9:16 PM, tedkelly27 wrote:

    Short selling video game develops is definitely short term based on when these games come out. Activision had a bad quarter but it's just because they had no new major releases. But what's the next one comes out shorts need to get out. http://investing.businessweek.com/businessweek/research/stoc...

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