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, we'll take a look at companies on the NYSE Alternext Stock Exchange with the largest percentage decrease of shares sold short. Whoa! I hear you saying. What the heck is the Alternext Exchange? That's the new name for the American Stock Exchange after it was folded into NYSE Euronext (NYSE:NYX). Combining that list with the collective intelligence of Motley Fool CAPS, we'll see which companies Fools believe have the power to make short work of short-sellers.

Sources: wsj.com. Share counts in millions.

Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warranted their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 125,000-strong CAPS community offers just such a good place to start.

The short list
Banks still look like risky bets, and we have a stimulus plan that Congress has bloated into the Mother of All Christmas Tree Bills: At over $800 billion, the spending free-for-all could pile up inflationary pressure behind it. No wonder gold prices are on the move again. Gold is over $900 an ounce and could very well test the $1000 level it hit last year.

That's why CAPS member 100ozRound is willing to assume a little risk with Golden Star Resources. The gold producer has seen its shares quadruple since the beginning of December, but the higher price for gold makes the processing at its Bogoso mines more economically feasible. 100oxRound writes: "I think it's still a bit expensive at this price but with Gold and Silver going up, there is more upside than downside. Speculation with a risk I'm willing to take."

Jumpstart the business
Undoubtedly that's also the reason we find short-sellers in retreat on most of the stocks in our list today -- the preponderance of the names are gold bugs! The bailout plan in its various iterations is the reason CAPS member ZenWarrior01 thinks NovaGold Resources is a gold producer to play: "Too much money being pumped into the economy. Gold prices should continue to rise as a dollar hedge."

Wraithlok feels that way as well about Seabridge Gold, which he blogs will be one of the biggest gainers in the sector over the next few years:

[Seabridge Gold] is not a mining company, they are a claim rights company. As such investors are buying in their ability to obtain undeveloped claims at a cheap price and then selling them off at a higher price after the Preliminary feasability study is done. As such buyers of gold mines want to see three things namely a low cost to mine, a high gold content, and a gold market value that makes it worth while.

Gold Value: Because of the danger of inflation within the next few years a lot of people are going to be turning to gold for a safehaven (right or not). This will of course raise the gold value in the market place and make undeveloped claims like KSM more attractive.

You can read the full blog by clicking here.

Don't sell yourself short
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Then 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!