Stockpickr) -- Sometimes, the best buying opportunities come from finding the stocks that everyone else hates.
That's one of the key tenants of
contrarian investing, a school of market thought that's predicated on the idea that the crowd is wrong at turning points. If years like 2008 have taught us anything, it's that even the biggest stocks can get mispriced over long periods of time -- and investors who spot those mispricings can profit.
That's why we're looking at a set of heavily shorted blue-chip stocks today. That's right, 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. Large-cap names also have more analyst eyes on them, and as a result, they tend to snap back more quickly than smaller names.
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To be clear, these stocks aren't necessarily undervalued right now. Instead, the mispricing opportunity comes from a short squeeze in shares.
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