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 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
April 13 (millions)

Shares Short
March 30

Change

 Float

CAPS Rating (out of 5)


Westport Innovations
(Nasdaq: WPRT  )
14.2 9.9 42.9% 31.1% *****
New Gold (AMEX: NGD  ) 3.3 2.4 40.5% 0.7% ***

Source: wsj.com.

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 may also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain, and our 180,000-strong CAPS community offers a good place to start.

Gearing up for growth
Short-sellers shouldn't think they've had the last laugh when it comes to Westport Innovations. They may have piled into the stock and driven shares down 36% from their recent highs, but with natural gas trading below $2 per million Btus, demand for innovative uses for the fuel will put the stock in high gear again.

While the low price is hurting natural-gas drillers, who are cutting back on production, and even weakening the catalysts in other industries -- coal stocks are in a funk as utilities switch to natural gas to take advantage of the historically weak pricing -- there are companies like Westport and Fuel Systems Solutions (Nasdaq: FSYS  ) that will not only benefit from low prices, but thrive because of them.

Trucking companies are already making the switch to natural-gas vehicles, and state governments are also looking to save money by converting their fleets to the cheaper fuel. Westport announced earlier this year that it signed on truck maker Navistar International to offer a complete package for trucking companies wanting to make the switch.

I'd probably keep an eye on engine maker Cummins, especially because of its joint venture with Westport and its potential to go off on solo projects. While these plays will all get a tremendous boost when natural-gas vehicles are marketed to the general public, the risks right now are that such vehicles cost much more than oil-powered vehicles, and the payback period is too long to justify a conversion or a new purchase for consumers.

I rated Westport to outperform on CAPS long ago and have enjoyed multibagger returns, but not everyone sees it that way, including 2670nirvana, who, while acknowledging the deals it has in place with its partners, also sees it losing out by being in competition with them. Tell me in the comments section whether you think the shorts are right to get worked up about Westport Innovations' elevated price level, or add the stock to your watchlist to see if the shorts get burned with their big bets against it.

The golden rule
New troubles arose for New Gold at its El Morro project in Chile, where the Supreme Court there temporarily suspended the approval of the environmental permit that was issued. El Morro is a joint venture between New Gold and majority owner Goldcorp (NYSE: GG  ) , and, as many miners have discovered, the views of an area's indigenous people must be taken into account. The environmental permit was apparently awarded without such consideration.

Newmont Mining has seen progress at its Conga gold mine disrupted as a result of outcries from Peruvian villagers, while Barrick Gold (NYSE: ABX  ) faces similar protests in Argentina.

But New Gold has several other projects that it's moving on, including the Blackwater mine in British Columbia, where it recently finished drilling more than 100 holes and seemingly confirmed strong continuity of mineralization across the deposit. Its New Afton project is less than two months from starting production and is forecast to produce 35,000 to 45,000 ounces of gold and 30 million to 35 million pounds of copper. Total cash costs on a co-byproduct basis are expected to be $630 to $650 per ounce of gold and $1.35 to $1.45 per pound of copper this year.

It's that new mine that has CAPS member Usagisama excited about New Gold's prospects as he estimates its cash flows will double this year.

Add your own thoughts on the New Gold CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker to see how well the new mine performs and keep track of the other projects under development.

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," and 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 Westport Innovations. Motley Fool newsletter services have recommended buying shares of Westport Innovations. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that
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Read/Post Comments (6) | Recommend This Article (1)

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 30, 2012, at 9:25 PM, steamoil wrote:

    I remember last year when this stock was trading in the 23-25 range . It seemed like one of those unique innovations as the price of natural gas was dropping, and the talk of gas rising..Well both of those events have come to pass, and this company is in a funk. With the big auto makers doing their own thing with nat gas engines, and the large trucking companies ordering nat gas powered trucks Westport hasn't found it's niche yet. I requested info from Westport last year to try and create the possibity of a retrofit operatoin using the smallest engine made by Westport to install in cars and small trucks, but the are not made small enough, nor would they comply with US emission regs. I think this share price will bounce around whenever gas prices rise and fall, but IMO I don't see any big deal happening with Westport. I already sold off my boatload of shares, before the price started to go south. Who knows , maybe next year they'll come up with the right combination.For now I'm done with Westport

  • Report this Comment On April 30, 2012, at 9:28 PM, steamoil wrote:

    BTW I think the shorts will do nicely with Westport,since no one else is going to.

  • Report this Comment On May 01, 2012, at 8:58 AM, globalHOBBIT wrote:

    New Gold (NGD) has a 'temporary' problem in a project that it only owns 30% of in Chile. Goldcorp (GG) owns 70% of the project and GG in very experienced in dealing local political issues. This problem will be resolved in short order and works will commence once again. The two companies are among the very best and both are internationally diversified as to mine locations. This companies stock prices currently may very well be offering astute investors a great time to buy these temporarily wounded premier gold companies.

  • Report this Comment On May 02, 2012, at 1:00 PM, 102971 wrote:

    Steamoil - You'll be sorry!!!!!!!!

  • Report this Comment On May 02, 2012, at 9:56 PM, steamoil wrote:

    102971 -Maybe 2yrs from now. But the 2 most important things to consider are the lack of nat gas fueling stations around the country, and the greater sales of electric vehicles. A car owner can plug their car for recharging just about anywhere, even at home. But you just aren't going to refuel your nat gas vehicle as easily. CNG cylinders are not available at your local fill up station, the average person will not make the switch.I doubt that anyone would take the risk of having a pile of spare gas tanks at home. Don't get me wrong , I think the concept is great. I even thought it was great when I started to experiment with propane fuel in my Hot Rodiing days 40 years ago , but it didn't fly . Besides propane is a lot more difficult to use on cars than nat gas. The whole nat gas thing needs to go through more of an idea sell to the public, then a product sell .That whole process will take at least 2years give or take.

  • Report this Comment On May 03, 2012, at 11:26 AM, RegLeCrisp wrote:

    Prices have been low for years, Westport hasn't made a nickel. What kind of IP do they have? Doesn't look like much, if Cummins is doing it. If the trend catches on the big guys will destroy them on economies of scale and pre-existing strategic relationships. This is a knee-jerk fueled company that merits high due diligence. The smart money smelled short opportunities here immediately, not saying they have no future, just don't put all the kids college money here. Put the dog's allowance fund here.

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