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 American Stock Exchange have the largest percentage increases 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.

Source: 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
Financially troubled oil sands developer Oilsands Quest wants make do with what it's got, though short-sellers might expect that the company's nearing its end. Whereas Suncor (NYSE: SU) and Canadian National Resources (NYSE: CNQ) appear to be thriving in the current environment, Oilsands Quest continues to pare away at its operations to get down to a manageable core.

It was able to get a one-year extension on its primary discovery in the Axe Lake region of Saskatchewan, but it gave up three other permits elsewhere. The company felt those areas weren't viable, given the presence of interbedded water or a lack of bitumen. Oilsands Quest aims to turn its permits into licenses, and then into leases.

Previously, Oilsands had to secure at-the-market financing to fund its operations, and though it says it has sufficient capital to make it through to the end of the year, the company's obviously ill. An attempt to sell itself off last year failed when no buyers materialized.

Oil sands developers in general, along with U.S. markets, would benefit from the construction of a pipeline to transport their output to the United States. But environmentalists, the EPA, and even the State Department are rallying opposition to such a project. While having additional markets to sell into would help the likes of Suncor or Cenovus Energy, investors might want to bypass a stock like Oilsands Quest, and look to those companies that would operate a potential pipeline, like TransCanada.

Despite the company's grim challenges, the potential of its Saskatchewan property has led almost 97% of the more than 1,000 CAPS members rating Oilsands Quest to believe that it will outperform the broad market averages. The handful of Wall Street analysts following the company are also unanimous in their agreement.

Let us know in the comments section below or on the Oilsands Quest CAPS page whether it will survive long enough to complete its projects.

Dirtying its hands
Shorts of cancer researcher YM BioSciences might expect the biotech to come up, well, short at this year's American Society of Clinical Oncology annual meeting, scheduled to run through June 7. YM will be one of a number of companies presenting data on their drug developments, including Bristol-Myers Squibb's (NYSE: BMY) much-anticipated Yervoy, and Johnson & Johnson's Zytiga.

YM has enjoyed a nice run-up over the past year, with its stock soaring 158%. This afternoon, in a poster session at ASCO, the cancer therapy developer will give updated results from an earlier study that found positive data for its JAK1 and JAK2 Inhibitor CYT387. If the short-sellers are waiting for data from that session, they may be disappointed.

The CAPS community remains hopeful, with 97% of those rating YM convinced that it will beat the indexes. You can add it to your watchlist to keep track of its developments, and share your thoughts on the YM BioSciences CAPS page.

Squeezed to death
With pretenders to the throne of rare-earth elements, like China Shen Zhou Mining, getting investors jazzed for no reason, news that a real mining giant like Brazil's Vale (NYSE: VALE) was getting into the business ought to give pause to any investors putting their money elsewhere.

The world's largest miner has already gotten a $12 billion investment from Apple's Chinese iPhone producer Foxconn -- rare earth elements are prevalent in smartphones and electric. Vale will likely challenge China for supremacy in the rare-earth element market.

The market for such elements will only grow. That's why Molycorp, which recently reported promising progress at its Project Phoenix, and Avalon Rare Metals will have plenty of business despite Vale's presence. The U.S., after all, has 13% of the world's rare earth resources. Rare Element Resources has a 100% interest in the Bear Lodge property, possibly one of the largest rare earth deposits in North America.

Recent speculation suggested that Avalon might be a buyout target, but its CEO has squashed that notion for the time being. With greater supply will come greater opportunities, and CAPS member VICHER thinks Avalon can back up its claims for greater growth.

Add the stock to the Fool's free portfolio tracker to find out whether Avalon will take on legendary status in the rare earth minerals niche.

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!