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 New York Stock Exchange had some of 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.

The short list
Department store chain Kohl's was unable to beat its struggling rivals last month as same-store sales at J.C. Penney (NYSE: JCP) grew faster and it was able only to match customer pull at Macy's (NYSE: M). While analysts expect Kohl's to actually be a big gainer in comps this month, with a 4.3% rise, that's still not above last year's 4.3% effort. Has Kohl's squandered an opportunity to grow appreciably faster than the rest of the industry.

The chain has certainly had the goodwill of consumers and analysts on its side. It's been seen as the department store retailer likely to make the biggest splash, yet its performance has been only middling. And now it's caught up in a situation in which the SEC has filed charges against a former executive of one of its suppliers, Carter's.

According to the SEC, a Carter's executive persuaded a large national department store (which sources have identified as Kohl's) to defer accounting for discounts received until later reporting periods. While the SEC is pursuing the executive, and Carter's has been given a pass for cooperating, it's surprising that Kohl's has not been charged.

But short-sellers are probably more focused on sales for the Christmas season; Kohl's shares are down 8% since their high point just before Thanksgiving. CAPS member CraigMiles sees the retailer struggling still:

It took KSS 30% longer to sell their inventory from Q2 to Q3 in their 2011 fiscal year. They are fairly valued at $55. I am considering shorting KSS on expected weakness from Black Friday.

Let us know on the Kohl's CAPS page whether the shorts will finally capitulate and send shares soaring again.

Squeezed to death
The shorts betting against parts suppliers are going up against a very strong trend in the auto industry. Auto sales are accelerating with Ford (NYSE: F) estimating as many as 13 million cars sold annually industrywide. While that may be a touch exuberant, General Motors' return to the public markets has analysts hopeful the industry is on the road to recovery.

And a healthier auto industry is going to mean better times for suppliers. Lear has returned from the grave and has been a strong performer with its stock up 47% in 2010. Johnson Controls (NYSE: JCI) remains a formidable adversary, and it's looking to acquire struggling rivals to strengthen its own hand. That probably won't include Lear at this point, and CAPS member tsperbeck believes the debt problems the supplier has won't amount to much in the future.

If you think the auto parts industry is still a rattletrap, keep track of Lear's progress by adding the stock to your watchlist and having all the Foolish news and analysis aggregated for you in one place.

I'll drink to that!
Another successful turnaround has been mall operator General Growth Properties, whose stock has seen near 40% growth this year. In and out of bankruptcy, the REIT just spun off Howard Hughes, a real estate investment and development company.

Bill Ackman of Pershing Square Capital says now is the best time to invest in real estate, and with a substantial position in GGP, he's also taken on the chairman's role at Howard Hughes. Yet CAPS All-Star jaketen2001 thinks General Growth will be mired in the muck for some time to come:

An unfocused company. According to some it will indescribably navigate its way out of insolvency via a super magic lawyer trick. This webbed together fleet of junk is stranded on the shore, the tide having gone out.

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!