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.

These top companies on the New York Stock Exchange had some of 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
Feb. 29

Shares Short
Feb. 15

% Change

% Float

CAPS Rating (out of 5)

Barrick Gold (NYSE: ABX  )

10.2

5.4

87.8%

1%

***


Talisman Energy
(NYSE: TLM  )

6.0

3.2

86.2%

0.6%

****

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 180,000-strong CAPS community offers just such a good place to start.

Good as gold
The markets have rejoiced in Greece's financial situation, despite concerns that the country could still have troubling repaying even its reduced debt burden. Yet even with talk of Spain or Portugal being the next domino to follow, the price of gold settled flat for the week. A relatively positive U.S. jobs report helped dampen more enthusiasm for precious metals, but I think the better domestic outlook is just a gloss on significant structural weakness here, so investors would do well to continue looking at gold and silver miners when there is weakness in their price.

Barrick Gold and Goldcorp (NYSE: GG  ) , as two of the world's largest gold miners, should benefit from the coming inflection point. While production costs are a concern as rising labor and extraction expenses strain margins, their ability to generate copious amounts of free cash flow will eventually be recognized.

Barrick reported fourth-quarter sales rose 26% and operating profits were up 15%, while its cash costs also rose 15% to $505 an ounce. Goldcorp also saw a 23% jump in operating profits. With a dividend that yields only 1.3% currently, though, Barrick will be bolstering the payout for investors who are awaiting the return of gold's upward momentum. It raised its dividend 25% last year and is looking to be aggressive with it going forward. Agnico-Eagle Mines also raised its payout 25%, while Kinross Gold (NYSE: KGC  ) announced a 33% hike in its dividend. As long as gold prices stay high and operational results are favorable, it's easy for Barrick, Kinross, and their peers to boost payouts.

With Europe still a financial basket case, I'm rating Barrick to outperform on CAPS as investors eventually flock to the strongest names. I agree with geomedf -- there are too many factors for it not to rise:

Ripple effect of fed liquidity bubble, emerging China demand and Europe uncertainty will push quality gold stocks. ABX has largest in ground reserve of gold, so this is a good mining and physical gold investment IMHO.

Add Barrick Gold to the Fool's free portfolio tracker to be notified of the latest geopolitical events that could impact its stock.

Gas prices: Unnaturally low
Over the past few years, Talisman Energy has been selling off assets not related to its core business. With a target of $1 billion to $2 billion in asset divestitures set for 2012, it just agreed to offload coal projects to Xstrata for $500 million, and before that, agreed to sell its 33% stake in an offshore Norwegian oil field. By severely pruning its operations, Talisman is hoping to weather the gloom surrounding natural gas. Although the amount in storage fell again last week, according to the Energy Information Agency, supplies are still 48% above the five-year average, causing prices to fall to their lowest levels in a decade.

It was an ugly quarter for natural gas producers Talisman and Ultra Petroleum (NYSE: UPL  ) , both of which have had to cut their drilling plans back sharply to compensate for the weak fundamentals of the industry. Ultra reduced its development drilling plans by 50%.

However, with 96% of the CAPS members rating Talisman believing it will outperform the broad market indexes, shorts just might be surprised soon enough. Add Talisman to your Watchlist, and let us know in the comments section below -- or on the Talisman Energy CAPS page -- how long you think this supply glut will last.

Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?

If you're looking to squeeze out more ideas, there's just one stock The Motley Fool thinks will break all the rules to win big. Check out the new special report "Discover the Next Rule-Breaking Multibagger" -- you can get free instant access by clicking here!

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Ultra Petroleum. Motley Fool newsletter services have recommended buying shares of Ultra Petroleum. 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. 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 13, 2012, at 5:31 PM, EllenBrandtPhD wrote:

    Pretty much everything above is irrelevant!

    Both NEM and Freeport raised a boatload of cash over the past few days. Both NEM and Freeport desperately need to do some big buys within the sector - almost certainly, IMO, fellow XAU component companies.

    It is just a matter of time - of days? - before NEM makes its first move, IMO. Freeport very soon, too.

    Both Barrick and GG will likely be among the main beneficiaries of these M&A moves, since they will likely NOT be making any! Their status within the XAU and TSX Gold indices will climb, while Freeport and NEM's decline, if they are in the middle of bidding wars.

    GG, especially, has ZERO desire to buy something else now.

    But the sector wants to be convinced which companies will and will not be involved in the coming spate of M&A before they place their bets.

    Note that CDE - which now has so few shares, it could well be a TARGET rather than a buyer - has outperformed its nearest peers the past few months. I believe Frisco or Fresnillo could afford to make a bid for CDE - and Freeport might be a possibility, too, if it perceives a coming Golden Age for Silver.

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