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.

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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.

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.

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