Beating Back the Short Attack

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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, and they're aiming to turn their pessimism into potential profits.

This week, let's look at companies on the New York Stock Exchange 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	30-Day Return	CAPS Rating (out of 5)
Allied Waste (NYSE: AW)	8.7	40.7	(78.62%)	288.9	6.01%	****
Rite Aid (NYSE: RAD)	45.6	55.2	(17.30%)	541.8	8.24%	***
Jones Apparel (NYSE: JNY)	11.8	16.5	(28.71%)	84.5	0.64%	**
Calpine	15.5	19.9	(22.04%)	248.0	(1.94%)	***
Micron Technology (NYSE: MU)	85.7	90.0	(4.74%)	754.6	(2.72%)	***
Affiliated Managers	2.1	5.7	(63.07%)	36.1	4.84%	***
DPL	19.4	22.7	(14.79%)	113.3	2.43%	***
Teco Energy	7.8	10.9	(28.94%)	196.9	6.95%	****
CSX (NYSE: CSX)	15.3	18.4	(16.65%)	401.6	18.65%	*****
Wal-Mart (NYSE: WMT)	45.1	48.1	(6.15%)	2240	10.68%	***

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 95,000-strong CAPS community just offers a good place to start. Yet most of these companies are generally well-liked, as most have garnered three stars or better on their CAPS ratings.

What a waste
It had all the earmarks of a short attack against a company. Allied Waste's shares short rose a remarkable 50% over the last two weeks of February, only to turn tail and run the other way in the first two weeks of March. Shares short fell by nearly 80% in that 14-day period, and seemingly all for naught. The share price ended basically where it started, and there was no big run-up in between. However, the shares have risen 11.6% since then.

No one thinks about or cares too much for garbage until it doesn't get picked up. Allied Waste is the country's fourth-largest trash hauler and landfill operator, based on market cap, behind Waste Management (NYSE: WMI). At half the size of its larger rival based on revenue, Allied trades at a discount to Waste Management on 2008's and 2009's earnings while also enjoying a doubling of free cash flow over the past year. With the opportunity to raise prices further in 2008 -- where others in the industry might be constrained from having already done so -- Allied might see its financial position more readily improve.

Allied is providing a vital, though little-respected, service. CAPS investor Matt8265 thinks that works in its favor:

Trash isn't going away. Land and business is [worth] more than the share price. Has debt to be paid down, interest rates going lower helps this stock.

Last November, CAPS player Popnfresh100 found Allied Waste to be a bit of a sleeper and thinks its earnings miss is helping it quietly catch up with Waste Management:

Allied has been steadily gaining ground on Waste Management for years. Earnings tanked in the last quarter because of major issues and lawsuits at a few sites, masking the nationwide growth of the company. Allied should recover next quarter and continue growing.

Garbage collection would seem to be recession-proof; that segment accounts for 64% of Allied's revenue. Most of the rest comes from construction and demolition roll-off collection services. This might be more sensitive to economic conditions and may account for some of the market's current negativity surrounding this stock.

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!