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 profits.

These companies had some of 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
April 13 (millions)

Shares Short
March 30

Change

 Float

CAPS Rating (out of 5)


Westport Innovations
(NAS: WPRT)
14.29.942.9%31.1%*****
New Gold (ASE: NGD) 3.32.440.5%0.7%***

Source: wsj.com.


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 may also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain, and our 180,000-strong CAPS community offers a good place to start.

Gearing up for growth
Short-sellers shouldn't think they've had the last laugh when it comes to Westport Innovations. They may have piled into the stock and driven shares down 36% from their recent highs, but with natural gas trading below $2 per million Btus, demand for innovative uses for the fuel will put the stock in high gear again.

While the low price is hurting natural-gas drillers, who are cutting back on production, and even weakening the catalysts in other industries -- coal stocks are in a funk as utilities switch to natural gas to take advantage of the historically weak pricing -- there are companies like Westport and Fuel Systems Solutions (NAS: FSYS) that will not only benefit from low prices, but thrive because of them.

Trucking companies are already making the switch to natural-gas vehicles, and state governments are also looking to save money by converting their fleets to the cheaper fuel. Westport announced earlier this year that it signed on truck maker Navistar International to offer a complete package for trucking companies wanting to make the switch.

I'd probably keep an eye on engine maker Cummins, especially because of its joint venture with Westport and its potential to go off on solo projects. While these plays will all get a tremendous boost when natural-gas vehicles are marketed to the general public, the risks right now are that such vehicles cost much more than oil-powered vehicles, and the payback period is too long to justify a conversion or a new purchase for consumers.

I rated Westport to outperform on CAPS long ago and have enjoyed multibagger returns, but not everyone sees it that way, including 2670nirvana, who, while acknowledging the deals it has in place with its partners, also sees it losing out by being in competition with them. Tell me in the comments section whether you think the shorts are right to get worked up about Westport Innovations' elevated price level, or add the stock to your watchlist to see if the shorts get burned with their big bets against it.

The golden rule
New troubles arose for New Gold at its El Morro project in Chile, where the Supreme Court there temporarily suspended the approval of the environmental permit that was issued. El Morro is a joint venture between New Gold and majority owner Goldcorp (NYS: GG) , and, as many miners have discovered, the views of an area's indigenous people must be taken into account. The environmental permit was apparently awarded without such consideration.

Newmont Mining has seen progress at its Conga gold mine disrupted as a result of outcries from Peruvian villagers, while Barrick Gold (NYS: ABX) faces similar protests in Argentina.

But New Gold has several other projects that it's moving on, including the Blackwater mine in British Columbia, where it recently finished drilling more than 100 holes and seemingly confirmed strong continuity of mineralization across the deposit. Its New Afton project is less than two months from starting production and is forecast to produce 35,000 to 45,000 ounces of gold and 30 million to 35 million pounds of copper. Total cash costs on a co-byproduct basis are expected to be $630 to $650 per ounce of gold and $1.35 to $1.45 per pound of copper this year.

It's that new mine that has CAPS member Usagisama excited about New Gold's prospects as he estimates its cash flows will double this year.

Add your own thoughts on the New Gold CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker to see how well the new mine performs and keep track of the other projects under development.

Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?

If you're looking to squeeze out more ideas, there's just one stock The Motley Fool thinks will break all the rules to win big. Check out the new special report "Discover the Next Rule-Breaking Multibagger," and you can get free instant access by clicking here!

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Westport Innovations.Motley Fool newsletter serviceshave recommended buying shares of Westport Innovations. The Motley Fool has adisclosure policy.
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