Among the biggest losers in Thursday’s early trading are Westwood One (Nasdaq: WWON), Hot Topic (Nasdaq: HOTT) and Semiconductor Manufacturing (NYSE: SMI).

Westwood One Continues Its Losing Streak

With the advent of satellite radio companies like Sirius XM (Nasdaq: SIRI) and the time-sucking phenomena known as YouTube and Facebook, a number of national radio chains saw declining audiences and were forced into bankruptcy in recent years. One of the last publicly-traded radio operators, Westwood One (Nasdaq: WWON), looks headed for a similar fate.

#-ad_banner-#The company managed to stem a long-standing decline in ad sales in the most recent quarter, but many investors had hoped to hear about an even more robust turnaround in sales. Instead, it now looks as if ad sales will barely budge in this upturn, and as firms such as Sirius XM sign up even more subscribers, the secular headwinds simply won’t go away for the old-school radio chains.

Westwood One reported quarterly results after the bell on Monday, and shares have been falling sharply ever since, down another -10% in Thursday trading. Short sellers smell blood. Despite a 2009 restructuring, Westwood One still carries more than $100 million in debt, most of which carries very high interest. In the most recent quarter, the company spent more than $5 million on interest payments, which roughly doubled the operating loss. Cash stands at less than $10 million, which means the operator will likely have to raise yet more money, or declare bankruptcy. That’s like manna for short-sellers.

Action to Take –> The ongoing sell-off is likely to continue, so do not look to bottom-fish at these levels. More money is likely to be made on the short side of the trade.

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China’s Flawed State Sponsorship

The perils of a centrally-planned economy have been spelled out by numerous pundits. But the main complaint is worth repeating: Governments do not know how to efficiently allocate capital, and can distort competition. The Chinese government has poured gobs of money into a number of enterprises, and many of those companies are stressing the Chinese banking systems with non-performing loans, or eating through investor cash by generating large quarterly losses. A prime example is Semiconductor Manufacturing (NYSE: SMI) which has quickly grown to become the world’s fourth-largest chip foundry. But size does not equal profits. The company has not made a dime in the last five years, losing more than $1.4 billion during that time.

Shares of Semiconductor Manufacturing are down for the eighth straight session, shedding more than -12% on Thursday. As is the case with Westwood One (discussed above), Semiconductor Manufacturing appears ill-equipped to survive without further financial support. It’s unlikely that the Chinese government would let the company go bankrupt, but large capital injections could prove very dilutive to shareholders.

Action to Take –> Don’t look to catch this falling knife. It will be hard to short the stock, especially as it is domiciled halfway around the world and could be manipulated by big holders to create pain for short-sellers.

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Hot Topic Not Ripe for Shorting… Yet

Retail sales have held up fairly well recently, especially for companies with a strong value proposition. But even as the sector comes back to life, investors should remain vigilant about the more fashion-forward retailers — especially those catering to teens. For starters, teens tend to switch their brand loyalty en masse. In addition, forecasts call for teen hiring to stay very depressed this summer.

That’s a bad sign for Hot Topic (Nasdaq: HOTT), which not only delivered weak first quarter results on Wednesday evening, but said that second quarter sales trends are off to an even worse start. That’s pushing shares down more than -10% in Thursday trading.

The inherent risk in a retail model focused on fickle teens implies that shares should not warrant a high price-to-earnings ratio (P/E). Shares of Hot Topic trade for more than 20 times projected fiscal 2011 profits, and about 16 times projected fiscal 2012 profits. Those multiples could easily compress, and today’s sell-off may be just the beginning.

Action to Take –> This is a not yet a good candidate for short-selling. The entire retail sector has cooled off, and if the market stabilizes, investors may rotate back into the sector, giving shares of Hot Topic a temporary rebound.