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 New York 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
Maybe with gold prices falling below $1,600 an ounce, short sellers don't see AuRico Gold and Northgate Minerals (AMEX: NXG) as being the combined gold-mining powerhouse that some other smart investors do. They might want to use caution: The new company likely creates a premier mid-tier gold miner that will have five operating gold mines, a sixth scheduled to begin producing next year, and several more under development.

Actually, there are a lot of contenders for most dramatic gold-mining operation these days. Brigus Gold is a compelling turnaround story in its own right, but the former Gammon Gold has put on an impressive array of accomplishments over the past year that include achieving costs rivaling industry leaders Goldcorp and Yamana Gold  (NYSE: AUY) and discovering new high-grade resources that it was able to immediately put into production.

Like the price of gold, AuRico's shares may be off 30% from their recent highs, but investors remain confident that the stock still holds its luster, with 93% of the CAPS All-Stars rating the junior gold miner to outperform the market indexes.

Dig deeper into their reasoning on the AuRico Gold CAPS page and add the stock to the Fool's free portfolio tracker.

Cheap is relative
Like AuRico, Spanish telecom giant Telefonica has seen its stock lose more than a quarter of its value, and while not as flashy as the gold miner, it offers investors prospects every bit as lustrous. The intriguing growth lever is the amount of mobile communications spectrum it can grab in the markets it serves. For while Telefonica is Spain's largest phone-service provider, it's also a leading provider in the U.K. and Brazil.

Great Britain is looking to auction off its 4G spectrum sometime next year, and the Spanish telecom is angling to grab as large a share as it can. It's filed an objection with regulators over plans to limit how much each bidder can buy as they want to ensure four operators remain in the country. That will necessarily impede the chance of Telefonica's O2 brand from gaining more ground over Vodafone (Nasdaq: VOD) and Everything Everywhere, the three of which comprise the country's largest operators.

I recently noted international telecoms represented an attractive buy right now, with depressed prices but secure, tempting dividends yielding around 8% or 9%. CAPS member MajorBob04 looks at the stock this way: "This is a great company whose stock price is getting hurt by Euro and European financial problems. Long-term they will do very well as they are well entrenched in Latin America as well."

Add Telefonica to your watchlist if you want to read more about its progress, and then tell us on the Telefonica CAPS page whether you see it dialing up more growth.

You gotta have heart
The refining business hasn't been a particularly profitable one for investors in recent months, with shares of Western Refining (NYSE: WNR), Hess, and Valero Energy falling by double-digit amounts. While they're still reporting large gains over the past year, its clear the refining sector's star has fallen, and some top names are turning their backs on the business. No doubt the short sellers smell blood in the water (or oil, as the case may be).

Management at HollyFrontier smells it, too, but they're seeing it as a chance to give investors an infusion by launching a $100 million share-repurchase program.

CAPS All-Stars are even more bullish than the broader investment community about HollyFrontier's prospects in the current environment, and all but one Wall Street analyst thinks beating the market averages is a distinct possibility.

Refine your thoughts on the HollyFrontier CAPS page, and then monitor its progress by adding it to the Fool's portfolio tracker feature and see whether it will make the blood of short sellers everywhere boil.

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!