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 Nasdaq 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 a good place to start.

The short list
After an apparently disappointing earnings report last November that sent Copart's shares tumbling, the auto salvage specialist has seen its stock climb sharply, rising 21% from its low. While many undoubtedly saw the previous decline as overdone, the rally really got going when Copart announced it was buying back $400 million worth, or 15%, of its stock. With the tender offer being oversubscribed, it indicated there was an abundance of interest in the company.

That may be what the shorts are focusing on, as there will be a need to absorb the shares from the offer, and analysts as well are concerned insurance companies may become more reluctant to total out a vehicle and ship it to Copart for salvage. The analysts and shorts may be on the wrong side here.

The auto auction market is heating up. According to the National Auto Auction Association, fourth-quarter auction activity was up 1.4% from the year ago period. That might seem like a small gain, but it's the first time since the first quarter of 2008 that there was an increase. Moreover, it was the first quarter in three years that volume, price, and gross value were all up at the same time.

Over the past three months, Copart's shares are up 20%, while KAR Auction Services (NYSE: KAR) rose 16.5%. With 98% of the more than 1,400 CAPS members rating Copart to outperform the broad market averages, it appears they're willing to bet investors will bid up the price further. Let us know on the Copart CAPS page if you think it's worth auctioning off your shares at this level.

Squeezed to death
Biotech XOMA may have the best diabetes treatment in its experimental drug XOMA 052 when compared to offerings from Eli Lilly (NYSE: LLY), Novartis, or Amgen (Nasdaq: AMGN), as one analyst contends, but the mixed data it reported from the phase 2a study of a potential anti-inflammatory treatment for type 2 diabetes wasn't what investors were looking for. Still, the stock is up 12% so far this month, largely thanks to a commercialization deal it struck with France's Laboratoires Servier, and since it has the right to repurchase the U.S. and Japan rights to the drug (and license them to someone else), it's got the right positioning.

CAPS All-Stars are a little more sanguine about XOMA's prospects than the general CAPS community, with just 78% thinking it will turn in market-beating results. It could be that long runway facing the biotech that has them hedging their bets, but you can follow along by adding XOMA to the Fool's free portfolio tracker.

Going mobile
The mobile market is just getting ready for liftoff, and TriQuint Semiconductor is likely to be one of the primary beneficiaries, along with Skyworks Solutions (Nasdaq: SWKS). Both have targeted the smartphone market and are using the iPad's coattails to accelerate further. With some 80 tablet computers unveiled recently in conjunction with the Consumer Electronics Show, the mobile market is going to get the chip-makers in high gear.

It's this ever-evolving communications landscape that has CAPS member turkeybird expecting TriQuint to beat the market: "The expanding/changing communications field will allow this business to prosper with their products."

You can chip in with your thoughts on the TriQuint Semiconductor CAPS page and monitor its progress by adding it to your watchlist.

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!