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 are the companies on the Nasdaq stock exchange 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.
Shares Short Sept. 30
Shares Short Sept. 15
|RF Micro Devices (Nasdaq: RFMD )||30.2||23.4||29.3%||11.1%||****|
|Solazyme (Nasdaq: SZYM )||1.8||1.4||29.0%||6.1%||***|
|Acme Packet (Nasdaq: APKT )||3.7||3.0||25.9%||6.6%||***|
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 180,000-strong CAPS community offers just such a good place to start.
A patina of growth
Investors who went short on RF Micro Devices might find themselves squeezed if they were betting on a fall due to Nokia (NYSE: NOK ) imploding. In a surprise announcement, the Finnish handset maker said it actually made a profit on its mobile phone business -- albeit just 2% on operating earnings, but a profit nonetheless -- as it slashed prices to sell units.
In a world gaga about Apple's iPhone 4S, Nokia can still claim to be the global leader in handset sales, selling 106.6 million units in the third quarter. That's down from more than 110 million last year, but it was more than analysts expected.
That's good news for RF Micro, since Nokia still accounts for the lion's share of its revenues. Nokia's troubles have bounced back onto the chip maker, causing revenues to slide 21% last quarter. The handset maker represented 29% of RF's fiscal 2011 revenues.
CAPS member Rokclimber1 correctly points out that RF becomes less dependent on Nokia each year (it was 55% in 2010) so it should be stronger as new customers are added. Add RF Micro to your watchlist and see if it can chip away at the leash of dependence.
Still a golden opportunity
Like Rumpelstiltskin spinning straw into gold, Solazyme transforms a range of low-cost plant-based sugars into high-value oils. While synthetic fuels are its primary focus, nutrition and personal- and skin-care products are seen as ancillary lines of business with good growth prospects of their own. Last year it launched its Golden Chlorella line of dietary supplements (though why they'd want to name their product something that looks and sounds so close to the intestinal infection cholera escapes me) and it recently introduced its Algenist skin-care line at J.C. Penney's Sephora stores.
Product sales from these side businesses will provide initial revenues until Solazyme's fuel business ramps up. Right now, that business subsists on research grants from the government and payments from partners like Bunge (NYSE: BG ) and Dow Chemical.
The developmental nature of its R&D program, coupled with its being a new IPO (it went public in June) in a field with already established players like Rentech (NYSE: RTK ) , has likely attracted the short-selling crowd.
I haven't sold the shares short, but I have marked the stock to underperform the broad indexes on CAPS. Cake123xyz is one of the Solazyme bulls and recently commented that I'm not seeing the full picture on the company:
Let's admit it the company's stock price will likely suffer for a while since few people understand what this company's about, let alone know how to evaluate something that can't be profitable for another 2 years, but for the patient investors... this one's a winner.
Can't touch this!
We'll get Acme Packet's third-quarter earnings after the market's close today, but the cat was already let out of the bag earlier this month when the communications equipment provider said results would fall short of analyst expectations. The stock is down 13% in the weeks following the prerelease.
The primary cause of the shortfall was AT&T (NYSE: T ) delaying an order to Acme that it says will be fulfilled in the fourth quarter. While that hints at just a timing issue, analysts had been looking for Acme to show the fourth quarter as being more robust all on its own. Instead, it seems we'll just be getting the same outlook as before, but with Ma Bell included. That reinforces the reasons Wall Street downgraded the equipment maker this past summer as fears of an industry slowdown gripped the market.
CAPS member Clint35 isn't worried about the delay or Acme's position in the constellation of growth:
Down 17.38% in one day! Cool now it's a bargain. Well, not exactly. But they do have tons of growth ahead of them. And what they do is very important to other businesses.
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!