5 Stocks Under Attack

Everyone loves a winner. It's reasonable to assume, then, that everyone hates a loser. Yet with investing, that's not always so.

Contrarian investors love to pick through stocks that others cast away. Value investors are the garbage-divers of the marketplace. Conversely, when stocks have a big run-up, some investors like to bet against them. They're called short sellers, and they bet a stock is primed for a fall.

What goes up must come down
Here's a list of stocks on the New York Stock Exchange that reported having some of the largest increases in short interest positions in August. We'll turn to the collective intelligence of the Motley Fool CAPS community to learn which of these stocks -- if any -- Foolish investors think have the power to make short work of short sellers.

Company

Shares
Short-Sept.

Shares
Short-Aug.

% Change

Total Shares
Out

Short %
Total Out

CAPS Rating
(out of 5)

Marsh & McLennan (NYSE:MMC)

30.5

10.3

196.12%

541.01

5.64%

****

Jones Apparel (NYSE:JNY)

25.6

5.7

349.12%

108.94

23.50%

*

Rohm & Haas (NYSE:ROH)

18.7

2.7

592.59%

214.38

8.72%

*****

Rite Aid (NYSE:RAD)

46.9

36.2

29.56%

789.67

5.94%

**

DR Horton (NYSE:DHI)

38.0

29.6

14.70%

314.74

12.07%

*

Shares short data courtesy of Nasdaq. CAPS ratings courtesy of Motley Fool CAPS. Share counts are in millions.

Of course, this is not a list of stocks to buy -- or short! Maybe these stocks have some serious problems that warrant the high short interest. Maybe not. What do you think? Will they be squeezed?

Tapping the CAPS advantage
Over on CAPS, more than 65,000 investors are looking over these same stocks. Some they like, some they don't, and they all vote on what they think about them. Sometimes the stocks CAPS players like cross swords with those that short sellers don't like.

While these stocks are new to the list, some of their industries have been represented before. Certainly it's easy to see why housing might be included. Those numbers look bleak far out into the future, and the recent surge homebuilders enjoyed may have been just another example of a dead cat bounce.

Marsh & McLennan has been under the gun since former New York attorney general -- and current state governor -- Eliot Spitzer charged it with bid-rigging back in 2005. The risk management company settled with the state, paying an $850 million fine, but was also sued by clients who chose not to participate in the settlement. Mix in analyst downgrades in recent weeks and management changes at different units, and you have a volatile situation. Shares had been down as much as 20% since the beginning of the year.

Yet a judge dismissed the lawsuits against the company, and new appointments have been made in the executive suites. While analysts might think things could get worse, the four-star rating indicates that CAPS investors think long-term prospects for the Motley Fool Inside Value recommendation outweigh short-term factors. In fact, the stock has recovered 7% since hitting its nadir.

CAPS investors have also given the insurance company increasing support, something we can tell by a stock's CAPS trend.

Ensuring a positive outcome
Nearly 200 professional and novice investors have weighed in on Marsh & McLennan. Almost 93% see it outperforming, while 95% of the All-Stars also see it as beating the market. Take that, shorts!

CAPS All-Star TheCreek likes the company's position within the industry and the moves senior management has made.

Insurance powerhouse focused on insurance, reinsurance and risk management. I also love the CEO's decision to replace his office managers, nationwide, and said it will be worth it in the long term.

Industry factors, like the "soft market" cycle it is in, will play to Marsh's benefit, according to CAPS player Forror.

Risk Management will become increasingly important to large commercial clients over the next couple years. Seeking a "power player" with market access to carriers will boost revenues driven from consulting fees for Marsh. Whether this balances out loss of commission income from decreasing prices in the marketplace is to be seen. However with this "soft market" cycle of insurance Marsh has a chance to re-establish their commercial connections and trust with clients once again.

Maybe you'll agree -- or not! Whichever side you end up on, now's the time to tell the CAPS community what you have to say. Only on Motley Fool CAPS does your opinion count just as much as the short sellers'. Tell us what you think: Squeeze 'em till it hurts, or short 'em till the sun don't shine? May the best argument prevail!


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