From what I can tell from the pictures... do not think in terms of stretching or shrinking until the low spot is raised up, and the highs are knocked down. It is about moving the metal, not changing the surface area by stretching or shrinking...at least not until you have the surface smooth. Then you will probably need to shrink.
The rust holes should be cut out and a patch welded in. Usually the thin area extends beyond what you see.