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.

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.

Get to work!
Short-sellers may be expecting cloud-computing software specialist TIBCO Software to follow the path blazed by Informatica last month when Europe's financial woes caused it to stumble. As Fool blogger Lee Samaha pointed out at the time, Informatica warned that "customers were delaying orders, requiring further sign-offs and lowering threshold approval levels." It ended up losing more than a quarter of its market value on the news.

TIBCO had its own issues, to be sure, though Europe -- surprisingly -- wasn't one of them. Execution in its North American division led it to remove the segment president from his position. After a string of underperforming quarters, the CEO felt he could no longer stand by and watch the company's largest segment continue to lag the world. Europe was witnessing 22% growth, second only to Asia at 27%. North America followed far behind at 13%. Decisive moves like that is why Vivek Ranadive is a much-admired executive.

I think the shorts misread the signals Informatica gave off. TIBCO was able to overcome the hurdles Europe threw in front of it, unlike its peer, putting it in a superior position to gain more ground. While some may view the situation in the Western Hemisphere as concerning, it seems more a situation of not being aggressive enough in going after business, which a fresh perspective from new blood ought to correct. This wasn't a sign of an industrywide slump but rather a company-specific problem.

As an up-and-coming player in the rapidly expanding "big data" market, it will have significant competition from leader IBM, but it's not insurmountable. At the least the market will grow so large as to support numerous rivals. I've rated TIBCO to outperform the market. Tell me in the comments box below if you think the shorts misread the tea leaves or will its North American issues make for a bad brew.

Going into overdrive
Problems on the Continent have also weighed on chip maker Intel (Nasdaq: INTC), which cut its full-year revenue forecast last month from "high single digit growth" down to just 3% to 5% growth as Europe pushed PC sales lower. Analysts say the computer market is damaged goods right now, with both Western Digital (Nasdaq: WDC) and Seagate Technology -- which make up almost 90% of the hard-drive market -- offering dour forecasts for the back half of the year. After Seagate's preannouncement, short-sellers may have been betting on the stock to dive when the earnings report hit.

Unfortunately for them, Western Digital surprised the market with its strength and Seagate essentially said it was willing to support the stock at current levels with share buybacks. As rumors swirl it may want to buy solid-state drive maker OCZ Technology (Nasdaq: OCZ), it's clear the company is not ceding any ground and is willing to use the opportunity to expand. What was originally a big sell-off in the stock became nothing more than its running in place as shares are about where they were before earnings.

At less than five times earnings expectations, I continue to find Seagate very cheap. More importantly, its enterprise value trades at a ridiculous five times its free cash flow (Western Digital is cheaper still). I believe the market is mispricing these stocks and I've rated Seagate and Western Digital to outperform the market. Chime in below on whether you think they have the drive to make short work of the short-sellers.

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?

To get the full scoop on one of the greatest plays in all of tech, Intel, you can click here to grab the Fool's new premium research report on the chip maker, including 12 months of updates. Grab your copy today.