3 Heavily Shorted TSX Stocks: Should You Stay Away?

Air Canada (TSX:AC) and other TSX stocks have attracted major short interest, as the Omicron variant threatens the recovery.

| More on:

The S&P/TSX Composite Index moved down marginally to close out the week on December 17. Markets have been rattled in December by news of the new Omicron COVID-19 variant that has started to sweep across the world. Countries have taken an extremely cautious approach, and the push for boosters is on. Today, I want to look at three TSX stocks that have recently attracted major short interest. Should investors stay away from these stocks? Let’s jump in.

Canada’s top airline has huge short interest

Air Canada (TSX:AC) topped the list of short positions on the TSX according to data from the New York-based firm S3 Partners. Shares of this TSX stock have plunged 13% month over month as of close on December 17. This pushed the stock into negative territory for the year-to-date period. According to data from S3 Partners, 32.3% of Air Canada’s float sold short as of December 16.

The company appeared to be set up for brighter days, as Canada’s vaccination drive met with good success in the spring and summer months. More international routes opened going into the fall. However, the rise of this variant now threatens to torpedo the momentum that has been built in the travel industry. Indeed, this is a sector that is still on a long recovery path. A return to increased restrictions and even lockdowns, as we have seen in the Netherlands, is disturbing news for Air Canada’s future.

Back in July, I’d recommended this TSX stock for the rest of this decade. I love Air Canada’s business, but the unfolding response to this variant is impossible to ignore. Vaccines have not been able to promise a return to normal. Air Canada and other airlines will be hard hit this winter and possibly beyond.

Why so many are betting against this TSX stock

Canopy Growth (TSX:WEED)(NYSE:CGC) came out of the gate as one of the top cannabis producers in the country. Moreover, it has positioned itself to take advantage of the massive United States cannabis market, as the country moves forward with federal legalization. However, the process has been slow, and the Biden administration is already staring down what is sure to be a bitterly contested re-election campaign.

David Klein, Canopy Growth’s CEO, was optimistic that federal legalization was on the horizon in 2020. However, that optimism has evaporated among business leaders in this space. That is bad news for Canopy Growth and its peers. This has also changed my optimistic view that I had still held in the summer.

Short-selling of this TSX stock came in at 22% of its float on December 16. It is becoming more difficult to have faith in the cannabis space right now.

One more TSX stock to watch out for in late 2021

Cineplex (TSX:CGX) is the last TSX stock I’d watch out for in late December. Shares of Cineplex have dropped 1.8% in the month-over-month period. The stock is up 49% in 2021. Cineplex last had a 12%

In July, Cineplex was finally able to open its doors in Ontario. Fortunately, it has avoided closures as Canadian provinces respond to the spread of Omicron. However, it has been forced to reduce its capacity to 50%. This will have a harsh impact on revenues, which will delay any hopes for a return to the stock’s dividend payouts.

Should you invest $1,000 in Brookfield Renewable Partners right now?

Before you buy stock in Brookfield Renewable Partners, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Brookfield Renewable Partners wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

More on Investing

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

The Top Canadian Stocks to Buy Immediately With $4,000

Insurance stocks are some of the strongest options, because we all need to pay it! And these three look top…

Read more »

dividends grow over time
Dividend Stocks

This Incredible Monthly Payer Is Down 17% and Looks Irresistible

Are you looking for an alternative source for a monthly paycheck? This stock is an irresistible deal to lock in…

Read more »

analyze data
Investing

This Canadian Stock Is Down 13% in a Month: It’s Still a Great Buy

Here's why the recent 13% slump in Barrick Gold (TSX:ABX) is one Canadian investors may want to consider buying to…

Read more »

investor looks at volatility chart
Tech Stocks

1 TSX Down 22% to Buy and Hold as Volatility Persists

Shopify stock has had its fair shares of ups and downs, but right now this rebounding tech stock looks like…

Read more »

top TSX stocks to buy
Dividend Stocks

This Monthly Income TSX Stock Paying 2.7% Looks Like a Bargain Today

Savaria is a TSX dividend stock that has crushed broader market returns over the past two decades. Is the Canadian…

Read more »

data analyze research
Dividend Stocks

This Canadian Blue-Chip Down 36% Is a Once-in-a-Decade Opportunity 

Rarely does an opportunity come to buy a blue-chip stock at a decade-low price. It helps you catch up on…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

Here’s Why at 45, the Average Canadian TFSA and RRSP Isn’t Enough

Get it all with this energy stock that offers dividends now and major future growth.

Read more »

Caution, careful
Investing

The Truth About Canada’s Market Slump: 2 Warning Signs and 1 Massive Recovery Catalyst

Let's dive into the recent slump in the Canadian stock market and try to gauge where the TSX could be…

Read more »