BALTIMORE ( Stockpickr) -- When most investors think of short-sellers, visions often come to mind of traders betting against small, shaky companies. After all, smaller companies tend to be less financially mature, and with fewer eyes on them, they also tend to have greater levels of investor uncertainty.
But what happens when short sellers pile into the large-cap stocks?
In general, large-cap stocks (usually defined as those with a market capitalization of $10 billion or more) are the most well-established companies in an investor's portfolio. They're the ones with plenty of analyst coverage and the ones that often pay dividend income out to investors. But even blue-chips can become the target of short-sellers when faced with major economic headwinds, flawed financials or another catalyst that could send shares lower.
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That's not necessarily a reason to flee. Heavy shorting in a large-cap stock can create a big short-squeeze opportunity for investors willing to look past the crowd.
In case you're not familiar with the term, a short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed.
Naturally, these plays aren't without their blemishes -- there's a reason that these stocks are being heavily shorted. But for investors looking for exposure to a speculative play with a beefier risk/reward tradeoff, these could be powerful upside plays for the coming year.
Without further ado, here's a look at
our list of large-cap short-squeeze opportunities