3 Stocks With Heavy Short Interest: AN, FSLR, AMR

It was an ugly day for equities on Wednesday, with the Dow off 279.65 points. The fact is that the economy is slowing down, as real estate prices continue to drop and the European debt crisis deepens. At the same time, the Federal Reserve’s stimulus program – called QE2 – will end this month and Congress is in disarray with the budget.

Well, all this is great news for short sellers. You see, these investors make money when share prices drop. In fact, short positions are actually disclosed to the public, giving us a glimpse of companies that may be in trouble. So what are some of the most heavily shorted?

Here’s a look:

AutoNation (NYSE: AN). The short interest is 13.28 million shares, which represents about 20.1% of the float (which is the total number of tradable shares). AutoNation, which is largest auto dealership operator, has actually seen strong gains with the stock price up a sizzling 75.7% over the past year.

But if the US economy is faltering, can AutoNation keep up the momentum? After all, car purchases are easily deferred. What’s more, the company has large amounts of revenue that come from California and Florida, which continue to have lagging economies.

Finally, AutoNation is feeling the impact of Japan’s earthquake and tsunami. The result has been production slowdowns and component shortages.

First Solar (NASDAQ: FSLR). The company has 17.5% of its shares short, which represents 36.30% of the float. This maker of modules for the solar industry is a favorite target of famed short seller, Jim Chanos (he manages the multi-billion dollar Kynikos hedge fund). His recent report on the stock was entitled:  “Solar + Wind = Hot Air.”

But in light of persistently high oil prices, isn’t solar a good alternative? Well, according to Chanos, it is simply not cost-effective. If you strip away the government supports, the industry would crumble.

And there is much pressure to cutback on the subsidies. Already, there have been moves in Germany and Italy. Also, it’s a good bet that there’ll be reduced spending in the US because of budgetary constraints.

Interestingly enough, First Solar’s team may also be concerned about the company’s prospects. They have been dumping large amounts of shares. At the same time, several executives have departed.

AMR (NYSE:AMR). There are 60.99 million shares that are short, which comes to about 21% of the float. True, the company has taken strikes to streamline its operations (the 2008 recession was brutal) but issues remain.

First, the price of fuel is a drag. It adds unpredictability to earnings, which always makes things tough on Wall Street. For example, AMR has suffered from losses in the two past quarters. Keep in mind that AMR has a fairly old fleet, which adds to the overall costs.

There may even be higher wage costs. Consider that the workforce is highly unionized — and is in the process of protracted negotiations.