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 and aim to turn their pessimism into potential profits.

These leading companies on the New York Stock Exchange have the biggest short positions. 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.

Source: 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 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
Although Bank of America witnessed a dramatic decline in the number of shares short in the last period reported, that's not taking into account the program that President Obama wants banks to pay for. He's seeking to give homeowners who are underwater on their mortgage $20 billion in relief while having the banks pick up the tab.

The program would force the largest U.S. banks, including Bank of America, Wells Fargo (NYSE: WFC), and JPMorgan Chase (NYSE: JPM), to pay for reductions in the loan principal on mortgages without letting investors in their mortgage-backed securities incur any hit from it. Thus, it will be the banks, and those who serviced the loans that would bear the brunt of the writeoff.

Of course, not everyone's happy with the plan, and that goes beyond the boardrooms of the banks that, presumably, aren't thrilled by the idea. Homeowners who were actually prudent with their spending, didn't take on a mortgage they couldn't afford, and have been timely with the payments on their loans aren't likely to take kindly to their profligate neighbors who once again are getting a bailout. It was Obama's original mortgage-bailout program that inspired CNBC's Rick Santelli's famous "rant heard 'round the world," which also sparked the creation of the Tea Party movement.

In any event, considering that big banks are banking big bucks these days, CAPS member Westy28 says the discounted price Bank of America is trading at won't be around forever.

After surviving the worst of the downturn, there is a lot of upside. They control a huge % of the mortgages in the country. I think housing has stabilized, and that is a good thing for banks who own a lot of foreclosed properties. Not to mention the Merrill Lynch acquisition, I don't think we'll see these low levels in the stock price for long.

Let us know in the comments section below or on the Bank of America CAPS page whether we should now penalize the banks for their actions after having previously rewarded them.

No small thing
Even if MGM Resorts saw its percentage of shares short decline a little in the last period, they still represent a substantial portion of its float. And short sellers had good reason to think the casino operator would roll craps in its latest quarterly report, as MGM's Center City project continues to be an albatross for the gambling house.

Although the debt situation improved a bit and the Macau operations were better, it still derives nearly three-quarters of its revenues from recession-wracked Las Vegas -- unlike rivals Wynn Resorts (Nasdaq: WYNN) and Las Vegas Sands (NYSE: LVS).

CAPS member MajorBob04 says MGM needs a lucky streak to come its way if it wants to recover: "Fewer charges but revenue is down. Price will go down until revenue returns or costs are cut further."

Add the stock to your watchlist and see whether MGM Resorts can become a high roller again.

Squeezed to death
You have to wonder what the shorts are thinking by betting so big against aluminum producer Alcoa. Prices for the commodity rose 13% last year and are forecasted to rise as much 15% in emerging markets such as China and India, leading analysts to conclude that Alcoa will see a big spike in its revenue per ton of aluminum sold.

CAPS member rodman1112 says growing demand for the metal will eliminate any surplus that may exist now and will grow even beyond that level: "Market for Aluminum is accelerating, even with worries that inventories might be at high levels [because of lackluster] demand the last 4 years. I think this could be a strong hold this year with great ratios."

Add Alcoa to the Fool's free portfolio tracker to stay on top of how bright of a future the aluminum miner might have.

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 or short 'em? May the best argument prevail!