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 are the top 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.
Shares Short, Oct. 14
Shares Short, Sept. 30
|Paramount Gold & Silver (ASE: PZG)||10.7||10.2||4.9%||9.4%||***|
|General Moly (ASE: GMO)||8.6||8.2||4.8%||12.9%||****|
|PolyMet Mining (ASE: PLM)||3.0||2.9||4%||2.5%||***|
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 180,000-strong CAPS community offers just such a good place to start.
On a golden path
Are short-sellers asleep at the switch for not realizing the potential the Sleeper gold project in Nevada has for Paramount Gold & Silver? The precious-metals miner updated its resource estimate in September showing that it's just about struck the motherlode, as the gold resource grew to 2.6 million measured and indicated ounces from 750,000 ounces, while the silver resource expansion was even more dramatic, soaring to 25.3 million ounces.
Then two weeks ago, it announced finding an additional gold zone at Sleeper that it will start drilling into soon to determine whether it has the higher grades than the original Sleeper mine. The Fool's gold guru, Christopher Barker, believes Barrick Gold (NYS: ABX) is taking note of Paramount's developments at Sleeper just as Coeur D'Alene Mines (NYS: CDE) is watching events unfolding at San Miguel.
Despite such developments, Paramount trades 31% lower than it did at the start of the year, making it a steal where you end up getting the additional gold for free. CAPS member MajorBob04 is looking for someone to step in and acquire Paramount based on that discount, as is Investstack: "Valuation of proven gold and silver selling at 10% of metal's value. Adjacent miners are likely buyers of these proven resources or the company as a whole."
Add Paramount Gold & Silver to your watchlist and see whether it can undermine the bear case against it.
Molybdenum miner General Moly may have surprised those betting against it by posting results in line with expectations. Losses narrowed significantly to $0.03 a share from the $0.09-per-share loss last year. But more likely, they were watching for word on its Mount Hope moly project in Nevada, where Molycorp has been waiting for an environmental impact statement to be approved and published so that it can continue to the next stage.
Although General Moly had hoped for that to happen in the third quarter, it's now been pushed into the fourth quarter. The Bureau of Land Management finally transmitted the document to its Washington office, where five Interior Department officials need to sign off on it before it can be published, after which there's a three-month public-comment period. "Progress" and "Washington" were never known to move swiftly on the same track.
Despite the movement, the mine (in which South Korean steel producer POSCO (NYS: PKX) has a 20% stake) isn't expected to yield its riches until 2014 at the earliest. Benefits from its other project, the Liberty mine, are even further out. It's hard to escape the conclusion that money invested here is likely to stagnate for some time, a point that eggbasket succinctly sums up: "Until production, price will stay down."
You can tell us on the General Moly CAPS page or in the comments section your own reasons for being a bull or bear, and then follow along by adding it to your watchlist.
Can't touch this!
Having one of the world's largest undeveloped deposits of copper, nickel, and other non-ferrous metals in the world does you no good if you can't mine it, and like General Moly, PolyMet Mining is suffering from the foot-dragging and general regulatory morass of Washington. It's also waiting for approval of its own supplemental draft environmental-impact statement, which isn't expected to be completed until January.
Copper prices have been rallying since September, when workers at Freeport-McMoRan's (NYS: FCX) Grasburg copper mine went on strike and have since prevented replacement workers from entering the mine. The strike is affecting Freeport's production and may hurt earnings. PolyMet, though, can't benefit from the situation because it's cooling its heels waiting for regulators, which, as CAPS member Rascheez notes, could be significant.
This mine makes money as long as copper is over 1.04 a pound and last I checked it's around 4.40 a pound. [PolyMet] working in conjunction with Duluth Metals will be a cash juggernaut. Chances are of course that Glencore will acquire the mine (it already owns 20% [because of] all the financing tranches Polymet has needed to get through the EIS process.)
You can tell us on the PolyMet Mining CAPS page or in the comments section below if you agree, and then see what happens when the EIS is approved by adding it to the Fool's portfolio tracker.
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 Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.