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 recently 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
June 15

Shares Short
May 31

% Change

%  Float

CAPS Rating
(out of 5)

Altria (NYSE: MO  ) 50.7 20.1 152.3% 2.5% *****

lululemon athletica
(Nasdaq: LULU  )
17.0 10.7 58.2% 16.8% **

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.

Up in smoke
Betting on sin has often been a winning play, whether it's gambling houses like Las Vegas Sands or cigarette makers like Altria. As the Fool's Morgan Housel notes, Marlboro maker Altria enjoyed 20% annual returns for 50 years. Today, though, the landscape's not so simple.

First, Altria isn't the company it once was, having come under attack from antismoking activists and shedding its international business into Philip Morris (NYSE: PM  ) . That had been working out well as Europe and Asia don't attach as much stigma to smoking as the U.S. does, but the financial collapse under way is making Philip Morris susceptible to currency fluctuations, and as CAPS member monthlyincome writes, it had to reduce its full-year guidance as a result.

That leaves investors looking at Altria as a somewhat more stable play. Its Marlboro brand registered greater market share gains in the first quarter, rising to 42.3% as a result of its brand-building efforts -- particularly the launch of Marlboro Black -- even though shipment volumes slid 3.4%. Its smokeless tobacco products, Copenhagen and Skoal, also scored more share, now owning more than half the market.

The best-performing segment, though, was the discount brand market, which enjoyed a 16% jump in shipment volumes. It's been a challenge going downmarket as Lorillard and Reynolds American have been specializing in discount smokes and their cigarettes cost about a dollar less per pack on average.

CAPS member TMFCane isn't concerned about the regulatory environment surrounding Altria, and finds the cigarette maker a "solid, consistent performer; financials are all in order. … Great stock."

Tell me in the comments section below or on the Altria CAPS page if it's time for the shorts to close out their position, then add the stock to your watchlist to see if the shorts get smoked.

Riding the coattails higher
Yoga-wear maker lululemon athletica may be lowballing second-quarter estimates, but short-sellers have apparently been taking the company at its word. The stock, which peaked at $81 a share, has lost about a quarter of its value since, though shares still carry a lofty multiple compared to earnings. I also remain concerned about inventory issues, though management says it expects demand to be higher, which is why it's stockpiling clothes now.

To its credit, it has no real debt and trailing earnings are up 45% from the year-ago period while growing at a compounded annual rate approaching 75% over the past three years. That compares favorably to the three-year rates of Under Armour (NYSE: UA  ) and Nike (NYSE: NKE  ) at 36% and 14%, respectively. Lululemon's same-store sales also rocketed 25% higher.

Yet margins slid across the board, which the company blames on higher raw material costs that don't look to be abating anytime soon.

I'm still hesitant about this retailer, and have marked it to underperform the broad indexes on CAPS, though TMFRazorback sees lululemon as a "big-time, global brand in the making here."

Stretch out your opinion on the lululemon athletica CAPS page or in the comments section below and add its stock to the Fool's free portfolio tracker to see if it can prove naysayers like me wrong.

Don't sell yourself short
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Fool contributor Rich Duprey owns shares of Nike, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of lululemon athletica and Under Armour. Motley Fool newsletter services have recommended buying shares of lululemon athletica, Under Armour, and Nike. Motley Fool newsletter services have recommended creating a bear put spread position in Under Armour. Motley Fool newsletter services have recommended creating a diagonal call position in Nike. 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.


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