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 and aim to turn their pessimism into potential profits.

These companies on the American Stock Exchange were 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.

Source: 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
Hedge funds are already a widely despised group of investors because of their short-selling strategies, but one hedgie is taking the practice a significant notch higher by actively trying to make the stock fall to achieve a profit.

MSMB Capital Management is trying to thwart Neoprobe's effort to get an FDA review of its lymph node mapping agent Lymphoseek. The hedge fund says there were "severe deficiencies and flaws" in two late-stage clinical trials, so it filed a "citizen petition" with the FDA to undermine the application review process. A successful challenge would undoubtedly cause Neoprobe's shares to crater.

MSMB isn't winning its industry any fans by doing this, but in reality it's a fairly common process. Teva Pharmaceuticals (Nasdaq: TEVA), Pfizer (NYSE: PFE), and ISTA Pharmaceuticals have all filed citizen petitions over the years to try to derail FDA reviews that might have had an impact on their own profits. It's just MSMB's direct, financial gain that appears so unseemly.

Others have raised questions about Neoprobe's trials, and more than two-thirds of the CAPS All-Stars rating it have doubts about the probability of its success. Let us know in the comments section below whether you think the Neoprobe can test higher levels again.

You, sir, are no Qualcomm
Short sellers are probably disagreeing with the analysts at Cowen & Co. who characterize VirnetX Holdings as a latter-day Qualcomm (Nasdaq: QCOM). The idea is that the patent portfolio of the 4G security specialist is similar to the trove held by the wireless telecom services provider at the dawn of the 3G age. Much has been made of its wrangling $200 million out of Microsoft in a patent-litigation settle, but the piling on here would suggest that it's much ado about nothing.

The CAPS community is also skeptical, as just 55% of those rating it see it going on to beat the indexes, while All-Stars have lined up against it, with nearly three-quarters seeing it coming up short. You can add VirnetX to your watchlist if you're interested in learning more about its progress, and you can share your thoughts on the VirnetX Holdings CAPS page.

Glittering gains
Considering Paramount Gold & Silver has tripled off its 52-week lows, short sellers must be thinking it's come too far, too fast. But there are plenty of factors still in place that could drive precious metals higher.

Federal Reserve Chairman Ben Bernanke has been left scratching his head over why the economy is stuck in a rut, even though he's unloaded his bazooka at it and kept interest rates near 0%. Now with inflation on the move, the Fed has scaled back its estimates on economic growth.

Paramount's wholly owned San Miguel project in Mexico is an extension of the world-class silver and gold Palmarejo mine owned by Coeur D'Alene Mines (NYSE: CDE). But CAPS member azpat0 has stated that one of Paramount's biggest assets is its management team, and the broader investor community apparently agrees, as 94% of those rating the precious-metals miner believe it will outperform the broad market averages.

Add the stock to the Fool's free portfolio tracker to find out how Paramount Gold & Silver hedges its bets 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!