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 profits.

These are the companies on the American 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
The Bakken shale of North Dakota has ignited the stocks of many oil plays, including Kodiak Oil & Gas (AMEX: KOG), and even refiners such as Frontier Oil (NYSE: FTO). It is a domestic supply formation willing to spread the wealth around and Northern Oil & Gas has eagerly tapped into it.

At its peak, Northern's stock doubled from the year-ago period and was up roughly 1,500% over a two-year time frame. That kind of stellar performance is going to attract skeptics, and the bear case accelerated when the CEO started dumping large amounts of stock on the market. Fools typically don't read too much into stock sales -- preferring to follow Peter Lynch's advice to take notice when they buy -- but selling into a falling stock and then dumping as much as $21 million all at once is certainly worth looking at.

Add in a report questioning the sustainability of Northern's leases. Apparently, the Bakken, while being a prodigious producer, also has a tendency to dry up pretty quickly after the initial drilling begins. When Northern reported an adjustment to its well depletions, it had short-sellers suggesting its numbers were understated. And the stocked sharply corrected.

CAPS member shay1975 thinks the company's well depletion numbers are understated, and though 91% of the CAPS community rating the oil and gas play believe it will outperform the broad market averages, that could change if the decline in numbers in the Bakken is worse than generally realized.

Considering Samson Oil & Gas is primarily a play on the Niobrara region, it shouldn't have too much fallout from what's happening at Northern, even though it does have a Bakken stake of some 3,300 acres.

The Niobrara is a parcel of land in the Denver-Julesberg Basin, which goes from northeastern Colorado through southeastern Wyoming and into southwestern Nebraska, that's attracted industry stalwarts like Chesapeake Energy, Devon Energy (NYSE: DVN), and EOG Resources.

CAPS members have been warming up to Samson's potential for a while, and though the stock tumbled from its recent highs, shares are still nearly 165% higher than where they were at the start of the year. A lot of that has to do with how Chesapeake and others are eyeing the Niobrara region, but CAPS member CaChinggggg thinks that despite its holdings Samson is not yet ready for prime time: "Yes they have some land in the new hot oil shale plays but they don't have the expertise with horizontal drilling to capitalize on this. This stock is very overbought."

Let us know in the comments section below or on the Samson Oil & Gas CAPS page whether the short-sellers are onto something here.

No small thing
The market researchers at NPD Group say digital downloads of games account for 40% of all sales each month and GameStop (NYSE: GME) expects to realize $1.5 billion in digital game revenues over the next four years, up from $300 million in 2010. For a video game accessories maker like Mad Catz Interactive, it doesn't matter whether games are sold digitally or not, so long as gamers are playing them.

CAPS member mcivcue thinks the trends support Mad Catz's growth initiatives:

This company has been around for quite sometime. Gaming is still a market that will continue to explode. This is largely due to Internet tv and online gaming services. [Mad Catz] makes quality acessories i think they will continue to grow over the course of the next few years.

Add Mad Catz to your watchlist to see whether the rough patch video game sales just went through will be permanently restored to health.

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!