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 top 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
That bet didn't go as planned, now, did it? While accusations of fuzzy math have been floating around about Chinese radio-chip specialist Spreadtrum Communications, short-seller Muddy Waters wasn't able to come up with really damning evidence the way it did for China MediaExpress, RINO International, and Duoyuan Global Water. More bullish analysts found some clarifying remarks from the company to be an indication that it might be backpedaling a bit.

The stock, which initially cratered on the Muddy Waters report's publication last week, has rebounded sharply, more than doubling from the low point it hit. Unless the short sellers got out quickly, they're taking quite a beat on this bet. And Spreadtrum's operating in an attractive enough sector that Qualcomm (Nasdaq: QCOM) is just one chip company wanting to get in.

That's one of the reasons CAPS member rcjansen sees Spreadtrum eventually succeeding: "Demand for wireless mobile communications in 2G and 3G should keep this company profitible for the foreseable future or as long as the Chinese economy stays on the high growth path."

Let us know in the comments section below or on the Spreadtrum Communications CAPS page whether you think it's the real deal.

Dirtying its hands
There's some sense to the notion that Zion Oil & Gas will find oil in Israel. The company believes with biblical certitude that it exists, but on a more practical level, if Isramco found oil off the coast of Tel Aviv, Total (NYSE: TOT) found it in the Sinai Peninsula, and Noble located gas in Tamar, there's no reason to think Zion won't find it too.

The key will be whether it's at levels for commercial production, and on Friday, Zion said its Ma'anit-Joseph No. 3 well came in far below expectations. The oil was not at commercial levels, though the company is going to proceed with additional testing, since natural gas was detected. Since the company has already sunk $29 million into the well, it makes sense to spend some more to see if whether can become viable with gas -- although the move could also be viewed as a stubbornness that saps resources from where they might be used more beneficially. Throwing good money after bad can sink a company fast.

The CAPS community is also skeptical, as just 62% of those rating the company see it going on to beat the indexes. Our All-Stars have lined up against it, too, with 42% seeing it coming up short. You can add Zion to your watchlist if you're interested in learning more about its progress as well as sharing your thoughts on the Zion Oil & Gas CAPS page.

Adventure on the high seas
Salvaging gold from shipwrecks makes for gripping Discovery Channel programming and even an exciting action-adventure movie plotline, but is it something you'd want to invest in? Odyssey Marine Exploration thinks so, though it has a history of horrible investor returns.

Who hasn't thought about the possibilities of finding lost treasure? Well, Odyssey is hot on the trail of some potential, well, gold mines. While its Black Swan find, with a reported $500 million in gold and silver coin, is tied up in court, it's also seeking the SS Garriposa, sunk by World War II German submarines with $260 million worth of silver coin on board.

But its not just shipwrecks where gold and silver is found. Typically, investors think of Goldcorp (NYSE: GG) or Coeur D'Alene Mines (NYSE: CDE) with their mining operations on terra firma, but companies are pursuing subsea mineral explorations as well, and Odyssey's Dorado Discovery vessel provides miners with advanced subsea mining and exploration equipment. That could prove a very lucrative venture all on its own.

Three quarters of those rating the treasure hunter believe it will outperform the broad market averages. Add the stock to the Fool's free portfolio tracker to see what Odyssey Marine Exploration discovers next.

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!