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 New York 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.

Sources: wsj.com. Share counts in millions.
*Shares outstanding, minus shares controlled by insiders, restricted stock and shares held by 5% owners.

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 110,000-strong CAPS community offers just such a good place to start.

A busted circuit
Circuit City didn't want it and many analysts couldn't fathom it, but in the end even Blockbuster  came to realize that trying to acquire the electronics retailer was a quixotic venture at best. While Blockbuster shareholders may be relieved, Circuit City investors are left with a still ailing business that even if another suitor comes along probably won't feel the need to offer much of a premium for the company.

Investors like CAPS member Phoenix07 find that Circuit City has minimal value, but unlocking it will be difficult and carting the retailer off on its deathbed is the most likely scenario.

The only value here is in the Firedog franchise (services) and Circuit City.com. Good luck extracting value from the online distribution without bricks and morter behind it. Firedog might be valuable to a larger player like Costco/Wal-Mart (NYSE:WMT) but, that doesn't speak to the prospects of Circuit City as it is currently constucted. [Best Buy] already played this card by vertically integrating with Geek Squad.

Carl Icahn has spoken about combining this with Blockbuster for an Apple (NASDAQ:AAPL) store like experience but, again this points to dire straights at [Circuit City]. Creditors will own this in no time and Icahn may still be licking his Yahoo! (NASDAQ:YHOO) wounds.

Mining acquisitions for profit
After acquiring Inco last year, Vale is both the largest iron ore miner in the world and the second largest nickel miner with the largest nickel reserves. That doesn't mean that the company could raise as much cash in a secondary offering as it had previously estimated, though. Thanks to a recently declining Brazilian market, due in part to turmoil in the credit markets abroad and inflation pressures at home, the company raised "only" $11.5 billion ($12.2 billion counting an over-allotment of preferred shares) in a recent secondary offering of both common and preferred shares instead of the $15 billion it was targeting. It has said it will use the cash for "general corporate purposes," which means just about anything, including future acquisitions.

Unlike Circuit City, Vale is certainly not seen as a troubled company in troubled times. As CAPS member EBStroke sees it, Brazil is similar to where the U.S. was at the dawn of the second Industrial Revolution and Vale is poised to capitalize on it.

Dominenant Brazilian mining company with major connections to China. I see this as a major materials pick for the next several years.

To me, economically, Brazil is to the world today as the U.S. was between 1880 - 1910. It is confident, growing, and has a exploding middle class. I'd rather learn Portugese than Chinese.

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!