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 companies had some of the largest percentage increases in shares sold 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
April 13

Shares Short
March 30

% Change

%  Float

CAPS Rating (out of 5)

Sprint Nextel (NYSE: S  ) 139.3 60.1 131.7% 4.7% **
Zynga (Nasdaq: ZNGA  ) 42.0 27.9 50.7% 51.9% *

Sources: 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.

Gearing up for growth
As if the smartphone chip shortage isn't enough of a headache for struggling telecom Sprint Nextel, U.S. customs agents are now holding up shipments of HTC's latest and greatest EVO 4G LTE phone because of an ITC ruling limiting the importation of certain handsets.

Chipmaker Qualcomm (Nasdaq: QCOM  ) is the sole source for new baseband LTE chips and can only produce 15 million of them when demand is running in excess of 30 million because of supply constraints from Taiwan Semiconductor. HTC, Samsung, and even Apple (Nasdaq: AAPL  ) are dependent on Qualcomm to provide the chips, but TSM has been swamped with orders and can't keep up.

But it's hardly good news for Sprint that its competitors are also being crimped, particularly since it was scheduled to start selling HTC's latest phone that's now sitting on the docks awaiting customs actions. Apple had won an injunction against HTC last year, and even though the handset maker says it's in compliance with the order, it has to iron out the intricacies of the deal and can't say when it will be resolved. AT&T (NYSE: T  ) was also waiting on HTC's One X phones, too.

And Sprint still has to defend its decision to guarantee sales of Apple's iPhones. While it contends, it needed the agreement to stay competitive with AT&T and Verizon and keep customers from leaving. CEO Dan Hesse, who survived vocal opposition to be re-elected to the board, said investors need only look at the performance of T-Mobile, which doesn't have the iPhone, to see the sense in the deal.

I think all of these hurdles are too large for Sprint to climb over, and I'm closing out my (losing) outperform rating of the telecom carrier on CAPS, but kahunacfa says now's just the right time to be climbing on board:

Sprint offers the fastest and most complete, unlimited Data phone Network on the planet. The Sprint network is far, far faster and far better than the AT&T network. Sprint is gaining market share -- especially now that they can offer the iPhone from Apple.

Tell me in the comments section below or on the Sprint CAPS page whether you think I'm jumping ship at precisely the wrong moment, and then add the stock to your Watchlist to see whether the shorts get caught short with their big bets against it.

Riding the coattails higher
As the Facebook IPO goes, so goes Zynga, the game maker behind those annoying Farmville and Cityville updates you're inundated with on the social-networking site. Because of the strong interest in the IPO, Facebook is increasing by 25% the number of shares it will offer to the public, giving early investors a chance to beat feet out the door. PayPal co-founder Peter Thiel, James Breyer from Accel Partners, and investment manager Tiger Global Management will add 84 million shares from their holdings.

With Zynga accounting for about 15% of Facebook's revenue, it's not surprising they're joined together at the hip. It also highlights the different values that companies can derive from the social-network site. General Motors just announced it was ending its advertising on Facebook because it didn't get anything out of it, though a cynic might say Farmville offers more value than a Chevy Volt, and so people will respond more to the former than the latter.

With such a heavy short component to its stock, and with Facebook increasing the offering price of its shares, Zynga's stock could benefit from a squeeze that short sellers will get caught in.

CAPS member EasyAs3141 sees Zynga being swept higher by the pending IPO regardless of the long-term potential of the company, but it's a minority viewpoint, as more than 60% of the 454 community members rating the gaming company think it will fall short of the market's performance.

Add your own thoughts on the Zynga CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker to see how quickly the Facebook effect wears off.

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?

Besides heavy short interest, both Sprint and Zynga are reliant on smartphone use in their own ways. At the Fool, we recognize that since the iPhone is the juggernaut in the space, investors need to stay in the know on Apple as well. To learn more about a new research service we are offering specifically on Apple, follow this link.

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Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Qualcomm and Apple. Motley Fool newsletter services have recommended buying shares of General Motors and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (4)

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 May 16, 2012, at 10:58 PM, AOverlord wrote:

    Sprint will rise slow but sure on the back of the IPhone. Zynga might get a short term pop due to Facebook's IPO, but will end up strugling again. Investors don't see how profits can continue from folks spending real dollars for imaginary supplies.

  • Report this Comment On May 16, 2012, at 11:37 PM, suckerturd wrote:

    What kind of idiot no offense to you fools since I watched some of your videos etc and most you boys sound like your balls haven't droped yet so I understand your lack of investment background. Seriously though you dont really deserve the right to talk about something you dont understand.

    Its why you all pick stocks like this to " Pretend Sell " , real shorters have the capital required yet it seems these tech companies have accounts where no capital is needed yet the benifit from the shares capital is funneled into accounts.

    Its really sad that no one invested in these companies in the beginning and we have 15 million traded daily and a group of morons that offset it every day and just borrow more and more debt.

    Eventually the wheels fall off in Zynga's case it just loss its entire float. 700 million in 10 days in missing capital? Even you idiots would notice.

  • Report this Comment On May 17, 2012, at 12:34 AM, LowellUkulele wrote:

    The fact remains that Sprint is the only U.S. carrier to offer new and existing customers the iPhone experience with unlimited data plans starting at $79.99 per month. Plus, Verizon now charges its customers $30 to upgrade to a new phone when they renew. AT&T charges $36. But Sprint only charges $18. An investment writer summed it up best: “Sprint offers the best value proposition for a new smartphone user. I got my first smartphone on Sprint because a new AT&T or Verizon data plan is outrageous. My Sprint plan includes 450 afternoon mobile-to-landline minutes, unlimited other minutes, and unlimited texting and data for $79.99. Unlimited AT&T or Verizon plans would approach $150, and to get a comparably-priced package, I'd have to settle on limited data or texting plans, which I'd have to constantly try to not blow through. Why get a smartphone if you can't have fun using it?” Sprint also placed first in the industry in customer satisfaction, according to results from the 2011 and 2012 American Customer Satisfaction Index.

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