Beating Back the Short Attack

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.

This week, let's look at companies on the Nasdaq market with the biggest decline in the number of shares 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 March 14

Shares Short Feb 29

% Change

Float*

1-Month Return

CAPS Rating (out of 5)

Tellabs

29.1

34.5

(15.57%)

391.9

(15.29%)

***

Brocade Communications (NASDAQ:BRCD)

7.8

12.3

(36.16%)

374.6

(10.71%)

****

Take-Two Interactive (NASDAQ:TTWO)

17.1

21.3

(19.87%)

76.7

(4.73%)

***

eBay (NASDAQ:EBAY)

29.2

32.9

(11.19%)

1,040

11.38%

***

Celgene (NASDAQ:CELG)

18.5

22.1

(16.06%)

393.1

6.91%

****

East West Bancorp

11.5

15.0

(23.43%)

59.7

(13.35%)

**

Yahoo! (NASDAQ:YHOO)

49.8

52.8

(5.65%)

1,200

(0.99%)

**

Sirius Satellite Radio (NASDAQ:SIRI)

97.4

100.2

(2.79%)

1,350

(3.74%)

**

NVIDIA (NASDAQ:NVDA)

16.2

18.7

(13.68%)

526.5

(15.14%)

*****

Centennial Communications

10.2

12.6

(19.62%)

41.5

(1.86%)

**

Shares short data courtesy of wsj.com. CAPS rating courtesy of Motley Fool CAPS. Share counts in millions.
*Float is number of shares available for trading.

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 93,000-strong CAPS community offers a good place to start. Most of these companies are generally well-liked; most have garnered three stars or better for their CAPS ratings.

Take two and call me
Ah, the joy of being in the catbird seat and dealing from a position of strength. That's the position two-time Motley Fool Rule Breakers recommendation Take-Two Interactive finds itself in as it is pursued by rival game maker Electronic Arts. Right after the bid was made -- at what some would consider a price cheaper than the value of a life in Grand Theft Auto -- Take-Two posted earnings that beat forecasts and caused it to raise guidance. That one-two punch could only have been salt in the wounds of short-sellers.

For investors who are bullish on Take-Two, it represents something of a validation of their belief that the company's game portfolio makes it a force to be reckoned with. CAPS investor TMFBadger03 noted in a pitch from early February that the company is more than just its Grand Theft Auto franchise, and each new game holds a less-commanding part of overall revenue. Here's an excerpt:

This company sells at a discount to its peers, and I think it has some tremendous growth potential. GTA IV should be a best-seller, but this company is no longer a one-trick pony*. In fact, the top 10 titles have had a shrinking impact on overall revenues, from 48% in 2005 ... to 27% in 2007. The biggest negative hanging over the company is possible fines over options backdating. But that was caused by previous management ...

* [Take-Two] had a big hit with Bioshock and are already planning Bioshock 2.

CAPS player Phontsolo says Take-Two should be in no hurry to sell itself, and certainly not before Grand Theft Auto 's release, which will undoubtedly boost the company's value further. Here's part of the pitch from earlier this month:

When GTA 4 comes out on April 29th it will sell and sell a lot! Not to mention the deal Take Two signed with Microsoft for exclusive downloadable content for the [Xbox] 360. What makes it even better is that EA Games wants to buy and the way I see it Take Two will not sell until after GTA 4 comes out.

Speak up
You've heard from CAPS investors -- now it's your turn to have your say. Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!


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