Top 5 Stocks to Short: The Stocks to Short Sell in a Financial Crash

Wall Street analysts are voicing concerns that we’re in the final stages of a long-running bull market. If true, you may want to prepare yourself for a volatile ride.

One of the best ways to do that is by shorting stocks. That is, you take a long position and borrow stocks from your broker that you believe are going to go down in price.

Shorting stocks is a popular way of making money during a down market. But, of course, this practice only works when you short the right stocks.

What stocks should you consider shorting? Check out this list we’ve compiled of the five best stocks to short now.

1. Applied Optoelectronics (AAOI)

To say Applied Optoelectronics stocks are in a slump would be an understatement. Down 49% over the past year, including 19% in 2019, this stock is attracting significant short interest.

At this point, AAOI stock appears to be stuck in a cycle, with poor performance attracting short investors, whose presence en masse is negatively affecting the stock.

On the surface, it seems surprising that AAOI continues its downward trend without a rally from bargain hunters. But many still fear the risk is too great, with the company trying to recover after losing business from it’s leading customer,  widely believed to be Amazon.

Many companies can pivot and realign after losing a big client, but Amazon isn’t just any client, it’s the client. Many feel that loss is too great to overcome, which likely explains the popularity of this short.

2. Netflix (NFLX)

Many analysts are recommending Netflix stock as a strong buy or hold. But chatter is picking up and with at least one major outlet recommending Netflix as a short sell candidate.

Netflix is a good short candidate due to increasing competition, namely from the mouse. The Disney merger with 20th Century Fox is now complete which means their motion picture archive is now the biggest in the world.

With the acquisition, Disney is now are the major shareholder in Hulu as well.

Disney is already experiencing rapid growth of their ESPN Plus streaming service and is getting ready to launch their family-friendly Disney Plus.

So if you want to stream Star Wars, Marvel movies or Pixar, you’re going to need Disney Plus. Barclays conservatively estimates Disney Plus will have a subscriber base similar in size to Netflix and Amazon by 2025.

Netflix is doing a fantastic job of producing high-quality original content. But the sledding is about to get tough going against increasing competition from Disney, Hulu, YouTube TV, AT&T, Amazon Prime, and Walmart.

3. AMC (AMC)

The rising popularity of streaming services is hurting the attendance numbers at theaters nationwide. AMC must maintain their considerable fixed costs, which means declining attendance will continue to narrow the company’s profit margins, and likely lead to more debt.

AMC is investing in its theaters with improved technology and seating to improve the total movie-going experience. But AMC has a thin float, with only 40% of shares outstanding and 25% of the float is on the short position.

4. Tesla (TSLA)

Tesla finds itself battling short sellers once again. You may remember CEO Elon Musk claiming Tesla was the most shorted stock in stock market history.

After rebounding near the end of 2018, the sharks are back to take a bite out of Tesla in 2019. In fact, the spiraling stock price earned short sellers $1.9 billion in March alone.

The market is clearly reacting to Tesla’s warning it is unlikely to report a first-quarter profit.

The shares are facing immense pressure resulting from the company’s announcement of the cheaper Model 3. The market is also proceeding bearishly to Tesla’s decision to close stores and lay off workers as it moves to an online-only model.

5. Bank of America Corp (BAC)

The timing is perfect for a short sell stock of Bank of America stock. The S&P is off to a strong start with January through March performance as memorable as anything we’ve seen since the 2008 crash.

But don’t think too much about the 13.50% rise in the first quarter as the second quarter doesn’t figure to repeat. Instead, lock in your gains and consider shorting your big financials, namely BAC.

Currently, an inverted yield curve is pointing to a recession, which means the operating environment for large bank stocks will be tough.

And with Bank of America already issuing not-so-subtle warnings on the price chart, a market decline like the bearish fourth quarter of last year appears inevitable.

Final Thoughts on the Best Stocks to Short

Finding the best stocks to short is a good way to hedge against bearish returns on Wall Street.

But shorting stocks is not without risks. Remember, if you lose money on a traditional stock buy, you only lose the money you invest. But with a short stock, you can theoretically lose an infinite amount of money as a stock price continues to rise.

Do your research. Know the risks. And have a defined exit plan to keep you from losing more than you can afford.

If you found this article helpful, please check out our guide on how stock loans work now.