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TheStreet Open House

5 Stocks That Could See Major Downside

NEW YORK ( Stockpickr) -- After steady gains in the first quarter and steady losses in the second quarter, the third quarter still hasn't shown its full hand.

One group hoping for a turn to the downside is the short-sellers. They are maintaining large short positions in some very popular stocks, hoping either company-specific bad news or a tough market will bring stock prices down -- and profits to short-sellers.

Even if you don't short stocks yourself, you still need to heed the actions of short sellers. If they are targeting a stock you own, then you need to think long and hard about whether you have a lot of confidence that these shorts are wrong.

>>5 Hated Stocks Set to Soar on Earnings

Here are five stocks that may be headed for a fall, at least according to short sellers.


Chesapeake Energy

Short Position: 83 million shares (as of July 13)

Chesapeake Energy (CHK) looked headed for big trouble in the spring when natural gas prices were plunging to multi-year lows and the company's chief executive was being pilloried for a series of conflict-of interest moves. Since then, new independent board directors have been brought to bring the CEO to heel, and gas prices have staged a solid 50% rebound.

Still, Chesapeake, which owns vast amount of energy-producing real estate, is faced with a major cash flow problem. The company has a huge funding gap as it aims to complete all of its capital spending plans. Chesapeake is hopeful that the rising cash flow that will result from rising gas prices, along with several asset sales, will raise the funds to keep business afloat.

>>5 Blue-Chip Stocks Ready to Boost Dividends

Short-sellers are betting that Chesapeake is ill-equipped to actually raise all the money it needs, and they see a big cash crunch coming. If that happens, shares would quickly move lower.

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