6 Stocks Under 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 American Stock Exchange with the largest decrease in the number of shares short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these firms Fools believe have the power to continue to make short work of short sellers.

Shares short data courtesy of wsj.com. CAPS rating courtesy of Motley Fool CAPS. Share counts in millions.
*Shares outstanding, minus shares controlled by insiders, restricted stock and shares held by 5% owners, as per wsj.com.

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 more than 105,000-strong CAPS community just offers a good place to start. Yet investors seem to like most of these companies, as evidenced by most having three- or four-star CAPS ratings.

The Sun also rises
Sometimes a company just can't move beyond its history. Despite having the largest percentage change in its shares short, SulphCo still has a very high short interest ratio. Investors are undoubtedly thinking that sonocracking sulfur-sour crude oil into a useable light, sweet crude won't be catching on anytime soon. Rule Breakers recommendation Headwaters (NYSE:HW) uses a different technology to achieve the same result, and it also doesn't have the speculative history of SulphCo's insiders to keep weighing on the stock.

Investors aren't very keen on the company, its technology, or the actions of principal Rudolph Gunnerman, who has been engaged in a steady diet of stock sales for much of a year now without having purchased any -- even though shares have been at some of their lowest levels in a year.

Three-quarters of the investors rating the company on CAPS think it will underperform the market, while more than 90% of the All-Star investors feel that way. Considering the last time SulphCo booked any revenue was in 2002 -- and even then, it was only $43,000 -- it seems amazing that anyone thinks this company can go up.

As CAPS investor YoungInvestor99 notes, it's a simple principle taught in Business 101: You have to make sales to make profits in order to survive.

Someone did the math for me a few picks before mine, this is at a whopping 125 times book value!?!?!? Can you imagine if a company like GE was trading at that multiple of their book value, they would be a multi-trillion dollar company... Also, for anyone who is bullish on this stock and has not taken Business 101. There is this thing that most companies have to make in order to survive, its called a profit. In order to do that, you usually have to sell something. But hey maybe Sulphco is the exception to this rule.

Speak up
You've heard from the CAPS community -- 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!