Professional investors think they’re the pits and are selling them short to make money Bloomberg News/Landov3D Systems CEO Abraham Reichental may no longer be smiling, since his company’s stock is down 57% this year, and 32% of the shares available for trading have been sold short.The stock-market waters are rough, with the S&P 500 Index now up only 1% this year, when investors were looking at a 9% gain last month after the benchmark index cracked 2,000 points for the first time. “For a while, there was a lot of complacency in the market,” said John Del Vecchio, who co-manages the AdvisorShares Ranger Equity Bear ETF HDGE, -1.10% “The volume, as the market headed higher, was fairly anemic. But when the market was selling off, the volume was significantly higher than in the rallies.” Del Vecchio says the stock market is priced very high in relation to sales and earnings. The S&P 500 SPX, +0.16% trades for 14.4 times aggregate 2015 earnings estimates, according to FactSet. A year ago, the forward price-to-earnings ratio for the index was 13.9%. Two years ago, it was 12.3%. We thought it would be interesting to see which companies have the worst prospects today, according to professional investors. Taking a broader view of the market, while still focusing on companies of relatively large size, here are the 15 S&P Composite 1500 stocks with the most short interest, according to FactSet. That is, companies that investors are wagering will fall, not rise.Most heavily shorted S&P 1500 stocksCompanyTickerShort interest - shares available for tradingShort interest - Dec. 31Total return - YTDTotal return - 3 yearsITT Educational Services Inc.ESI,-11.16%62%53%-86%-93%Ebix Inc.EBIX,-2.18%53%50%-8%-10%GT Advanced Technologies Inc.GTAT,+6.41%45%25%-91%-90%World Acceptance Corp.WRLD,+2.25%45%39%-22%16%Cliffs Natural Resources Inc.CLF,+9.94%41%31%-71%-87%Lindsay Corp.LNN,+2.36%40%33%-7%39%Swift Energy Co.SFY,+0.00%37%32%-43%-69%Paragon Offshore PLCPGN,-0.18%36%N/AN/AN/ANeuStar Inc. Class ANSR,+3.63%35%15%-51%-11%Rayonier Advanced Materials Inc.RYAM,+0.34%35%N/AN/AN/AAlbany Molecular Research Inc.AMRI,-1.10%34%20%114%618%Tuesday Morning Corp.TUES,+2.79%34%12%14%377%Outerwall Inc.OUTR,+0.64%33%31%-24%7%3D Systems Corp.DDD,+2.65%32%15%-58%251%Aeropostale Inc.ARO,+2.85%31%34%-68%-76%Source: FactSet At this point, the usual warning is in order: Shorting individual stocks is probably best left to professional investors. That’s because when you short a stock, your downside risk is unlimited — you can lose it all. This is how a short sale works: If you think a stock is going to fall, you borrow the shares and immediately sell them, hoping you eventually can buy them back at a lower price. If successful, you hand them back to the lender and pocket the difference. But if the stock rises after you short it, your broker will demand more cash collateral to make sure you will eventually return the shares you borrowed. Another factor: If a stock is already heavily shorted, you may have to pay the lender a premium to borrow the shares. For example, 3-D Systems DDD, +2.65% has 32% short interest, and is the biggest short position managed by Del Vecchio, who said during a phone interview that the company “has had some revenue issues.” It will cost you an annual rate of 21.5% to borrow shares of 3-D Systems. If you look at short percentages as of Dec. 31, you can see investors have been sticking with the same companies for a long time. Del Vecchio picks stocks to short by screening for high valuations to trailing sales, by analyzing a company’s revenue-recognition policy, and for how quickly it collects cash from customers after booking sales. A way to short stocks without taking the extra risk of making your own picks, and possibly facing margin calls, is to buy shares of the AdvisorShares Ranger Equity Bear ETF. Another way is to invest in the Forensic Accounting ETF FLAG, +0.57% which holds about 400 large-cap stocks and excludes those that raise red flags for valuation or revenue recognition. via