Do the Shorts Know Something You Don't?

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.

These top companies on the American Stock Exchange had the largest percentage increase in shares sold 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.

Sources: wsj.com. Share counts in millions. NM = not meaningful.

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 170,000-strong CAPS community offers just such a good place to start.

And by "rare," we mean "surprisingly plentiful"
As the world woke up to the fact that China had a near-monopoly on the production of rare earth metals -- around 97% worldwide -- companies like Molycorp (MCP) and Rare Earth Resources started getting a lot more notice from investors. Perhaps that's with good reason, although some rare earth elements are not as rare as their name suggests.

According to the U.S. Geological Survey, our domestic reserves of rare earth elements are pretty substantial, at 13% of the world's total. We just don't mine them. Yet there are 14 states with large known deposits of these minerals, including Mountain Pass, California; Bokan Mountain, Alaska; and the Bear Lodge Mountains of Wyoming. Rare Earth Resources wants to tap the Wyoming deposits.

Yet CAPS members suspect this company's little more than just a flash in the pan. More than 60% of those rating the rare earth elements specialist believe it won't outperform the market, while almost 70% of the All-Stars rating it have a similar view.

kidderpeabodyny points to the large position Market Vectors Rare Earth/Strategic Metals ETF owns in REE: "carefull on this, just noticed REMX has close to 3% of their portfolio in this, and Van Eck are good stock pickers in the metals field...I will exit when I can!"

Let us know on the Rare Earth Resources CAPS page whether this is a rare gem to add to your portfolio.

All that glitters...
With significant mining rights in the Lake Victoria region of Tanzania, and controlling more than half of the country's gold projects along with Barrick Gold (NYSE: ABX), Tanzanian Royalty Exploration possesses a rich vein to tap as the world still wobbles from fiscal turmoil.

Tanzanian's CEO Jim Sinclair famously bet $1 million that gold would trade to $1,650 per ounce on or before Jan. 14 of next year. With gold in the midst of a parabolic rise, he may just win out. CAPS members believe the gold miner will succeed; 86% of those who've rated the company marked it to outperform the broad market averages.

You can keep track of Tanzanian Royalty's rise by adding the stock to your watchlist, and get all the Foolish news and analysis aggregated for you in one place.

Giving new meaning to "deep value"
Another rising star among gold miners is Northgate Minerals, which operates three mines in Canada and Australia, with another one under construction. On a relative basis, Northgate's enterprise value-to-reserve ounce is cheap when compared to peers like Aurizon Mines (NYSE: AZK) and New Gold (NYSE: NGD). With analysts expecting a 44% annual jump in earnings over the next five years, its future prospects look pretty bright. CAPS member Arize attributes its current low price to the company's lack of respect from investors:

While many investors focus on near-term declines in gold production, the key here is recent Canadian approval of the development of huge gold deposits at a Northgate project called Young-Davidson in Ontario.

Production should start in the first half of 2012 and fully ramp up by 2014. This plus other projects could raise profits and make this stock double or more.

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!