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Dec. 29, 2011, 12:01 a.m. EST
Jeff Reeves is a financial journalist and the lead writer and editor for InvestorPlace.com. As a former New York Times Co. editor with almost a decade of newsroom experience, Jeff knows how to look beyond the headlines to find out what the latest news really means for individual investors and consumers. He lives outside Washington. Contact Jeff at editor@investorplace.com or follow his Twitter account, @JeffReevesIP.
By Jeff Reeves
The colossal collapse of Sears Holdings /quotes/zigman/95136/quotes/nls/shld SHLD -0.15% this week in the wake of news that Kmart and Sears will be closing over 100 stores was ugly for stockholders. SHLD gave up over 25% in one day as a result, pushing down its year-to-date loss to an abysmal 55%.
So Sears was the worst investment ever this year then, right?
Wrong. Investors just had to know how to be on the right side of SHLD shares when the bottom fell out - and how to profit.
Consider that as of the first of December, a whopping 40% percent of the "float" - that is, the amount of Sears Holdings stock that is actually available for trading on the public market -- was held by short-side traders.
That means more than a few folks made a tidy some by the big move down on Tuesday!
There's no secret to why the short sellers targeted Sears. SHLD has struggled to reinvent itself , chasing down online boondoggles that even include movie downloads . This while flagship Craftsman and Kenmore brands got "Made in China" labels and quality suffered, and brick-and-mortar stores lapsed into disrepair.
How could you NOT bet against Sears?
Admittedly, while the Sears trade seems obvious this kind of short-selling can be risky and is not for everyone. Read this " shorting stocks 101 " article for complete details on the ins and outs of these trades.
But if you're comfortable with the risk and want to take action, consider these three stocks with massive short interest that could go the way of Sears very soon:
Zagg
Zagg Inc. /quotes/zigman/105703/quotes/nls/zagg ZAGG -14.27% is an acronym for Zealous About Great Gadgets. This company making accessories for smartphones, laptops and the like - a seemingly bulletproof business, considering everyone and their brother has one of those little plastic sleeves for their iPhone.
Except there are signs momentum may be waning, as momentum tends to do in this difficult market. Competition is fierce and expensive charges related to the acquisition of competitor iFrog weighed on earnings this summer - with ZAGG shares plummeting from $15 to just $7.50 currently.
The current short interest in ZAGG stock is a hefty 45% as of the beginning of December, even more than Sears saw before its crash.
Granted, the August volatility had a lot to do with declines. And, yes, revenues continue to soar percentage-wise. The company has gone from $5 million in annual revenue for fiscal 2007 to about $150 million projected for fiscal 2011 - but let's be honest, that kind of mammoth growth simply can't happen again. Not unless Zagg can crank out $4.5 billion in sales by 2015. So some traders have already headed for the hills out of fear that the growth will be slowing very soon.
Momentum stock crashes like that of Green Mountain /quotes/zigman/54683/quotes/nls/gmcr GMCR -0.33% show what happens when share prices outpace expectations. The bears are sharpening their claws on Zagg right now.
Barnes & Noble
If you think that Sears was the no-brainer short of the century, here's another one - Barnes & Noble /quotes/zigman/132169/quotes/nls/bks BKS -1.87% .
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