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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.


Shares Short
July 31

Shares Short
July 13

% Change

%  Float

CAPS Rating (out of 5)

Taseko Mines (AMEX: TGB) 1.5 1.3 14.6% 0.8% ****
VirnetX (AMEX: VHC) 14.3 13.9 2.9% 34.1% *

Source: 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.

It's about time
After a string of "timing issues" led to significantly lower sales volumes of copper concentrate, it looks like copper and molybdenum miner Taseko Mines found the time to straighten things out. Second-quarter sales volumes surged 84% from the year-ago period, though molybdenum production tumbled 13% from the first quarter because of reduced recoveries, but it was still well ahead of last year's effort.

Taseko has been dealing with a number of issues in addition to its timing problems, including the shutdown of one of its mills, along with difficult "ore characteristics" and poor weather. Last month it was ordered to rewrite its environmental impact statement for its controversial Prosperity mine in British Columbia after it was accused of making a "misleading" statement regarding the potential for an earthquake-related environmental accident. It also failed to provide adequate information relating to the project's effect on the local environment and aboriginal rights. The government agency overseeing the project called the quality of Taseko's draft EIS report "very poor."

China, which accounts for 40% of worldwide copper demand, is experiencing a rapidly cooling economy that's affecting copper sales. Freeport-McMoRan Copper & Gold  (NYSE: FCX  ) sold 7% fewer pounds of copper last quarter, while Rio Tinto saw copper revenue drop 22% because of lower shipments. Taseko, as mentioned, saw higher sales volumes as its timing issues were resolved, but now we have to see whether that will be a consistent performance or whether it will experience the turbulence of its peers.

I thought Taseko Mines had worked out the kinks last year, and I marked it to outperform the indexes on CAPS, but as the latest imbroglio with its Prosperity report shows, this is a troubled miner that can't seem to get its act straight, so I'll be closing out my CAPScall on the miner. Tell me in the comments section below if you think it will be able to overcome the obstacles it keeps putting in front of itself.

This seems easy to call
When you hold all the cards, you don't have to deal from the bottom of the deck. VirnetX Holding has the entire 4G and LTE security standards deck in its hands, and every card it flips these days seems to be an ace.

In patent infringement lawsuits against Avaya and Siemens Enterprise Communications, the district court judge holding the Markman order hearing denied their attempt to change the definitions of the patents in dispute and said they would remain what they are in similar cases VirnetX has against Apple (Nasdaq: AAPL  ) , Cisco (Nasdaq: CSCO  ) , and NEC. A Markman hearing irons out interpretations of various patent claims before a trial begins.

And speaking of Apple, a judge just slapped it with some onerous sanctions over its lawyer's conduct in the case that is probably going to be very damaging to its defense. NEC saw the writing on the wall and agreed to pay up in exchange for being taken off the infringement lawsuit.

Earlier this year, I read the tea leaves, too, and marked VirnetX Holdings on CAPS to outperform the market. According to the folks at iSuppli, capital spending on 4G and LTE standards will nearly triple over the next year to more than $24 billion and reach $36 billion by 2015. That makes me think someone's going to want to buy the security specialist outright. Tell me in the comments box below if you agree.

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?

Despite the current jam it's in, Apple remains one of the greatest plays in all of tech and is ready for a new run. You can grab the Fool's new premium research report on the company that details all the risks and opportunities -- including the three areas you must watch -- by claiming your copy today. To make things even better, you'll get 12 months of updates afterwards.

Fool contributor Rich Duprey owns shares of Cisco and 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 Apple, Freeport-McMoRan, and Cisco. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. 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. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (13)

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 August 14, 2012, at 5:29 PM, caliwego1 wrote:

    vhc will prevail over AAPL AND CSCO,and will rise to $over 100.. pps.One of them should buy out Vhc and own the patents themselves and go after the other guy.Nextv to settle will be Seimens,then we wll see about the big boys.The wonderful CEO of Vhc Kendall Larsen is a genius and is concerned for the shareholders.There legal team of Mcool Smith is the best patent law firm around,go long folks!!!!!!

  • Report this Comment On August 14, 2012, at 5:54 PM, 67vair wrote:

    I believe Taseko will do very well from now on. I also believe they will get approval for the Prosperity mine as they have made the environmental changes that the government requested. I would buy in at this price, which will look low a few months from now.

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