Are you missing an opportunity in these three shorted stocks?

Shorters are banking on these three companies underperforming

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published May 19, 2014 8:47 am AEST

Investors have taken a dim view of the futures of three ASX-listed companies, forecasting that their share prices will crash even further.

Short sellers hope to profit when share prices fall, by first selling stock at high prices and then buying their positions back at lower prices. And it seems they are banking on bad news for Cochlear Limited (ASX: COH), Monadelphous Group Limited (ASX: MND) and Atlas Iron Limited (ASX: AGO). The three companies are the most shorted stocks on the ASX, according to data from ASIC.

Since the beginning of this year, the S&P/ ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen 2.4%, while Cochlear and Monadelphous have added 0.2% and 1.2% respectively, which is not all that bad.

Atlas Iron on the other hand, has seen its share price crunched, losing close to 35% since January. With the iron ore price tumbling – it hit US$100.70 over the weekend – investors expect Atlas Iron to start feeling the pain, and the company could see its share price hammered even more from here. It's likely a high risk strategy betting on Atlas Iron's share price rising from here in the short term.

Investors also expect mining services company Monadelphous to be on the end of more bad news as the resources boom winds down. Miners have been selling off assets, placing some mines, especially gold and coal mines, on care and maintenance and closing other unprofitable operations. All that means less work and lower revenues for mining contractors like Monadelphous. Shorters may well have picked Monadelphous' share price direction right.

Cochlear on the other hand has been under the pump ever since the company was forced to recall its top line hearing aid, thanks to moisture leaks in September 2011. Replacement products have taken time to bring to market, while competitors have lined up to take advantage of Cochlear's bad luck. As a result, the world's leading hearing implant company has seen its global market share drop to an estimated 60%. But the release of its latest implant in June 2013 could see the company surprise on the upside when it reports its full year results in August this year. As a stock I own, I'm fairly confident in Cochlear's success in the future.

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