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 with the largest percentage increases in shares 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
Considering oil exploration firm Hyperdynamics shouldn't be affected by the tragic events unfolding in Japan, the fact its stock is ricocheting around like a pinball underscores the volatility inherent in a company that has yet to start pumping any oil.

It certainly looks like it's ready for the big leagues, and the latest estimates released the other day suggest there's 3.7 billion barrels of potentially recoverable unrisked oil -- and 400 million barrels of risked oil -- in its holdings off the coast of Africa. While short-sellers seemed poised to take it down a few more notches and the partisans are ready to pounce on any statement that doesn't affirm their belief the company is the next ExxonMobil, but a dispassionate examination of the situation suggest investors may have a long wait for a payoff.

Yet the company has come a lot further than many of its critics gave it credit for (myself included), and it's also casting about for a drilling partner. Which is why CAPS member shawley1 is confident Hyperdynamics will ultimately be successful: "One question, why would HDY be looking for a drilling partner if there wasn't oil off the coast of West Africa? Simple answer, the oil is there."

Let us know in the comments section below or on the Hyperdynamics CAPS page whether its drilling program will turn out as successful as its most ardent backers suggest or if the short-sellers who have this exploration firm in their sights will take it down further.

No small thing
Similarly, Kodiak Oil & Gas is another energy play with big potential that's found itself in the crosshairs of short-sellers who have significantly increased their bets against it since last October when it first appeared on the list. Despite reporting record proved reserves, a 158% increase from the year ago period, and cash flows targeting a quadrupling in size from 2009, the stock has pared back more than 20% from recent highs. Even so, Kodiak's shares are still 78% higher than when it was first targeted.

It has unveiled a plan to clear the decks of debt and ramp up a drilling program for the year causing isacsimon to place his own bet the shorts are wrong.

Kodiak has announced a 158% increase in their proven reserves for 2010 from 2009. With access to 11.5 million barrels of oil equivalent, and production levels picking up, this already outperforming stock can bet big in the foreseeable future.

The Bakken play where Kodiak prowls -- and generated 95% of its total oil volume -- is getting crowded with hunters looking to exploit the region. Williams (NYSE: WMB) picked up a large amount of acreage at the end of last year following Hess' (NYSE: HES) buy into the region last summer. You can keep track of all the developments by adding Kodiak to your watchlist to see whether it bears repeating that there's a lot of opportunity to be found in this oil and gas leader.

Squeezed to death
As the wheels come off the rare earth elements investing thesis, players in this space -- real or imagined -- are seeing their shares prices dragged down. It was easy to see the shorts would want to pile on here.

So far this year Rare Earth Elements, whose claim to fame is a mine no one else wants, as CAPS All-Star liszewski points out, is down 35% while China Shen Zhou Mining (NYSE: SHZ) is off more than 50%. Even Molycorp, which at least has a viable rare earth mineral mine (though it's not shovel worthy yet) has given back 12% of the gains it achieved.

If you think Rare Earth Elements can still make something of the property Molycorp, Hecla Mining (NYSE: HL), and Duval all previously abandoned, add the stock to the Fool's free portfolio tracker to stay on top of its progress.

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!