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.

Company

Shares Short
Apr. 13

Shares Short
March 30

% Change

% Float

CAPS Rating 
(out of 5)

Thompson Creek Metals (NYSE: TC  ) 17.0 8.9 91.8% 11.1% *****
Clearwire (Nasdaq: CLWR  ) 65.1 44.2 47.1% 14.5% **

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.

Burning the furniture to heat the house?
In the month since it was highlighted as having a buy-one-get-one sale on its shares, Thompson Creek Metals has dropped an additional 40%, mostly occurring after it announced a $200 million rights offering and the sale of 8 million tangible equity units. Those units will automatically settle in three years for shares of common stock.

While it seems the shorts had this one right in the short run, Thompson Creek ought to do better in the long haul because of the money it raised. No doubt it was a fairly dilutive deal to raise the $200 million, but it's going to use that money to complete construction on its Mount Milligan, where it's estimated there are 6 million ounces of gold overlaid on 2.1 billion pounds of copper. When everything comes due, it's expected the gold and copper mine will be operational.

Thompson Creek has been trying to raise cash for a while to complete the project, having sold a stake in the mine's production to Royal Gold (NYSE: RGLD  ) for $270 million. Yet it still retains 60% ownership of Mount Milligan, meaning that the value of what it produces will likely far exceed the value the market is currently assigning to the company. As CAPS member LogicalD points out, the market is essentially saying the project has no value.

I'm rating Thompson Creek on CAPS to outperform the market as a result, but tell me in the comments section below or on the Thompson Creek Metals CAPS page whether it's time for the shorts to close out their position, then add the stock to your Watchlist to see if they end up getting caught short if they don't.

Riding the coattails higher
Wireless service provider Clearwire was also in the market selling stock to finish construction projects, selling $300 million worth to build out its network. The market crushed its stock on the news, and not even the bankruptcy of the politically connected LightSquared could give it a sustained bounce.

Clearwire has been dependent on Sprint (NYSE: S  ) for sustenance, and when Sprint began courting LightSquared for its proposed LTE network, Clearwire's WiMAX offerings were endangered. Now that LightSquared is kaput, despite extraordinary intervention on the part of the FCC as it tried to outmaneuver GlobalStar, Sprint came rushing back with full support for it.

With a fairly strong quarterly report issued by Clearwire last month, there should be plenty of foundation remaining upon which to build. It's building out its own LTE network now, and CAPS member dtrace believes that coupled with the sizable chunk of spectrum it owns, this leaves the wireless service provider cleared for takeoff: "They will have the largest and fastest LTE network available in the U.S., which is also the only one compatible with the LTE used by carriers in [Europe], China and India. Plus they hold a good portion of spectrum as well."

Add your own thoughts on the Clearwire CAPS page or in the comments section below and add its stock to the Fool's free portfolio tracker to see whether it can avoid LightSquared's fate.

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?

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Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not 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 (6)

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 31, 2012, at 2:31 PM, spokanimal wrote:

    Clearwire isn't "selling stock". It's doing shelf offering.

    If you were clearwire and had $1.4 billion in the bank to fund your LTE build over the next 12 to 18 months, but you wanted to have some "dry powder" available for any expansion of that build further out, what would YOU do?

    Clearly, the company has no need to issue stock for a buck-twenty a share today.

    On the other hand, clearwire's Erick Prusch stated in the wake of the Leap wireless 5-year deal that they were talking to many other companies about the upcoming TD-LTE network. If they begin to sign additional wholesale agreements as the LTE network becomes a reality, then it's conceivable that the stock could pop to the upside...

    ... in which case, it would be prudent to have a pile of stock "on the shelf" to exploit that pop if some of those new wholesale customers have network overflow needs that fall in geographies beyond the initial 5 to 8 thousand sites that Clearwire is constructing.

    The most foolish thing you can do, Rich, is to rely on ANOTHER motely fool author who doesn't have his investment banking facts straight.

    Spokanimal

  • Report this Comment On June 04, 2012, at 2:00 PM, techpatriot wrote:

    Let me rephrase the title of the article. Do the shorts know something that everyone else does not?

    Answer: Not Likely.

    So why is the float so high on TC? My guess is traders trying to make a buck off momentum, or too many people pulling the trigger without getting their facts straight. Do your own research and you tell me.

    As far as Clearwire, this stock is a spec play now, imho. Too many things need to go right for this stock to do well for me to be comfortable with it. All TC has to do is keep on doing what they are doing right now to produce serious revenue in 18-24 months. With Clearwire, that path to profitability is much less clear...

  • Report this Comment On June 04, 2012, at 3:04 PM, techpatriot wrote:
Add your comment.

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