Do the Shorts Know Something You Don't?

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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 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.

Company

Shares Short, June 15

Shares Short, May 31

% Change

%   Float

CAPS Rating (out of 5)

Minefinders (ASE: MFN)

1.9

1.6

19.9%

2.5%

***

North American Palladium (ASE: PAL)

9.2

8.8

5.5%

6.5%

****

New Gold (ASE: NGD)

2.1

2.0

3.4%

0.5%

***

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
When precious metals gave up the ghost in May and turned south after a rip-snortin' run, miners like Endeavor Silver (NYS: EKX) and Gold Resource (NAS: GORO) went down with them. Now as the politicians dither in Washington over raising the debt ceiling and deciding whether it should be based on spending cuts or mixing in tax increases, too, gold is being recognized once again as a safe haven for investors.

Minefinders, which operates the multimillion-ounce Dolores gold and silver mine in Mexico, also fell with its peers, but after hitting its low point last month, shares have rebounded 27%. No doubt performing like a thoroughbred has been predicated on ever better results, and while cash costs for the current quarter have not yet been reported, Minefinders says overall results will be above what analysts had been expecting.

It's not a completely different scenario for New Gold, which also recently updated its drilling progress at its Blackwater project in British Columbia. It plans to drill 100 more holes in the back half of the year, budgeting $20 million to significantly boost the exploration program. Add that to its 30% stake in Goldcorp's (NYS: GG) Chilean mine, and there's a reason some analysts think New Gold might be a place to put your money if you're looking for a new investment in the space.

Highly rated CAPS All-Star DarthMaul09 says that coming down the homestretch, it's Minefinders that will cross the finish line first: "As the mining stocks pay catch up with the metals and gold inches higher as a result of the flight from the euro, the product of these two trends is likely to outpace the S&P 500, which is still trying to recover from the recent non-farm payroll data."

Race over to the Minefinders CAPS page, and let us know whether it will win the run for the roses. Want to follow New Gold's developments? Add the stock to the Fool's free portfolio tracker and have all the news and analysis gathered in one spot.

Revving up palladium
Platinum-metals group miner North American Palladium hasn't enjoyed a bounce similar to Minefinders', despite having two main gold-mining projects, the Sleeping Giant and Vezza mines in Quebec -- the latter of which expects to begin initial production of 39,000 ounces starting early next year.

NAP's principal mine is the Lac des Iles property near Thunder Bay, Ontario. With deposits of copper, nickel, and platinum metals group minerals, North American Palladium is Canada's larger palladium miner.

Conditions look ripe for growth, there's a shortage of the metal, the worst in 30 years, but a lot will depend on how well the automobile industry recovers, since palladium is a key metal used in the manufacture of catalytic converters. Stillwater Mining (NYS: SWC) , the only U.S. palladium miner, is also counting on the auto industry's rebirth. And with prices on the rise, NAP and Stillwater may yet be able to catch up to the rise in gold, as CAPS member LibbyLoo00 notes.

Scarcity. Industrial need. It looks like it's on the bottom of a long slide and ready to start back up. Some African sources look like they will tighten up [because of] political issues in those countries. Even more scarcity.

Add NAP to your watchlist if you're interested in learning more about its progress as well as getting closer to the opinions of other investors on the North American Palladium CAPS page.

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!

At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Rich Duprey owns shares of North American Palladium but has no financial position in any of the other stocks mention in this article. You can see his holdings. The Motley Fool has a disclosure policy.

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