If you think market pessimism can't get any lower, you don't know the shorts. Betting against stocks by taking short positions -- which essentially means selling stocks you don't own, then buying them back later to zero out your account -- is a logical, yet risky, way to cash in on down markets.

Short interest actually fell through the first half of August, but there are still plenty of shorts out there. With 17.8 billion shares sold short in the New York Stock Exchange, and another 10.1 billion on Nasdaq, bears remain on the prowl on Wall Street.

Many short sellers will be deadly accurate -- but I'm guessing that others will regret their choices.

My favorite stat in gauging the pessimism is the short interest ratio -- the number of shares being shorted, divided by the average number of shares that trade in a single day. A stock that typically has trading volume of about 100,000, with a million shares sold short, would theoretically take 10 days to cover. (Hence, its short interest ratio is 10.)

Let's go over a few stocks I like that have unusually high short interest ratios at the moment.  


Short shares

Avg. Daily Volume

Days to Cover


4.0 million




8.5 million



Tempur-Pedic (NYSE:TPX)

34.0 million



Life Time Fitness (NYSE:LTM)

19.2 million



Rise of the machines
Why do we diss the coolest stocks? Whether it's making roadside bomb-sniffing automatons for the Middle East, or orb-like Roombas to vacuum a dorm room while coeds are out partying, iRobot has raised the bar for commerical robotics. iRobot creations are also helping with public safety, sucking leaves from the bottom of your swimming pool, and clearing out your neighbor's rooftop gutters.

If only reality were as exciting as iRobot's product sheet. When the company's not battling copycats, it's battling a lack of profitability. The company with the Asimovian name has posted a profit in just one of the past seven quarters.

The upside? Well, margins may be contracting, but top-line growth is on a tear. The company's time-saving consumer robots are proving just as popular abroad as they have closer to home. Volatile times also make it likely that the company's defense contracting business will only continue to improve, as more of the company's cutting-edge lifesavers get called up for military duty.

Location, location, location
The market is down on commercial real estate, even if that slice of the business has been spared the full brunt of the weakness seen on the residential side. In addition to LoopNet's own woes, faster-growing rival CoStar (NASDAQ:CSGP) is sporting an even higher short interest radio of 45 days.

Is the pessimism warranted? I don't think so. LoopNet has met or exceeded Wall Street's profit expectations during every single quarter since it went public two years ago. With nearly 3 million members and counting, LoopNet isn't shrinking.

Revenue inched 29% higher in its latest quarter. Earnings did take a slight dip, but the margin contraction isn't as important as LoopNet's steady gains in popularity. Having shed roughly half of its value over the past year, it's hard not to like the company here -- especially with its cash-rich balance sheet, which will make picking up its depressed rivals all the easier.

Feel the burn
Offering more than just sweaty throwback gyms, Life Time Fitness provides complete wellness solutions in social settings. That experience isn't just something penny-pinching exercise hounds can replace by buying a late-night-infomercial workout machine or firing up a copy of Nintendo's (OTC BB: NTDOY.PK) Wii Fit.

With 74 of its lifestyle centers offering everything from personal training to spa services, Life Time Fitness is bucking the larger market trend with consistent double-digit percentage gains in revenue and earnings. While other companies hosed down their profit targets, Life Time Fitness reaffirmed its outlook this summer, calling for 16% to 18% in bottom-line growth this year. As fate would have it, that's essentially also the 2008 earnings multiple the chain is sporting. Sounds to me like a good deal for a great company. Good luck betting against it.

Counting sheep
Premium mattress providers Tempur-Pedic and Select Comfort (NASDAQ:SCSS) have been giving their shareholders nightmares lately. I should know -- I'm a satisfied Sleep Number bed owner, but an unsatisfied Select Comfort investor.

The mattress industry has typically been recession-resilient, because lumpy mattresses need to be replaced, but the combination of a crumbling housing market and a lack of discretionary spending have devastated the industry.

Tempur-Pedic has actually held up better than its rivals. Yes, sales and earnings have taken a hit, but Tempur-Pedic has a steady health-care bedding business to help smooth out the niche's lumps.

Is a turnaround coming soon? No, but why chance it by shorting Tempur-Pedic. Once the economy shows signs of life, pent up demand for luxury products like Tempur-Pedic pressure-relieving mattresses will explode. Until then, why let the bedbugs bite?

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LoopNet is a Motley Fool Hidden Gems recommendation. LoopNet and iRobot are Motley Fool Rule Breakers picks. Nintendo Co Ltd ADR is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz doesn't mind sifting through the unloved for a good dining opportunity. He does not own shares in any of the companies in this story, save for Select Comfort. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.