As the old saying goes, the greater the risk, the greater the reward. As prices drop, risky stocks might seem much more attractive. I believe that investors should allocate a certain part of their funds toward risky stocks that could pay off big.
Typically, investors will find greater risk from high-growth industries with these stocks having a high beta. If sentiment improves, these stocks can provide multi-fold returns. On the other hand, when sentiments turn bearish, it does not take long for those same stocks to plunge.
Therefore, I recommend limiting your allocation to a small percentage of your portfolio.
A market-wide growth deceleration, geo-political tensions and presumed implications of an interest rate hike are a few factors that have depressed these stocks.
Trading exposure to some of these stocks could offer some quick gains. Also, some of these high-growth stocks are worth holding for the next few years.
| NIO | Nio | $17.50 |
| RIOT | Riot Blockchain | $10.97 |
| CPNG | Coupang | $13.90 |
| LCID | Lucid | $19.06 |
| TDOC | Teladoc | $37.14 |
| DKNG | DraftKings | $14.99 |
| PLTR | Palantir | $10.74 |
Nio (NYSE:NIO) stock has declined by 47% year-to-date.
Multiple factors have triggered the sharp correction including a worldwide chip shortage, raw material inflation and ongoing supply chain issues.
I believe that current levels are attractive for exposure to this Chinese EV stock. Once they’ve navigated these temporary headwinds, Nio stock can double quickly.
For April 2022, Nio delivered 5,074 vehicles. On a month-on-month basis, deliveries declined by almost 50%. However, supply chain issues have been discounted in the stock.
Nio expects to begin delivery of ET5 in September. It’s also worth noting that the company commenced deliveries of ET7 in March. With new models, delivery growth should improve as headwinds wane.
As of December 2021, Nio reported cash and equivalents of $8.7 billion. The robust cash buffer will help the company ramp up international expansion. Nio has witnessed a steady improvement in vehicle margin.
With operating leverage, the company will be positioned to deliver improved EBITDA.
Overall, Nio stock looks attractive after a big correction from all-time highs. The high-beta stock is worth considering for some quick gains.
Bitcoin (BTC-USD) has been struggling in 2022 and Bitcoin miners have witnessed a sharp correction.
However, for investors bullish on the long-term outlook for cryptocurrencies, Riot Blockchain (NASDAQ:RIOT) seems to be trading at an attractive valuation.
Riot stock currently trades at $10.97 and has declined by 72% in the last 12-months. Besides Bitcoin trending lower, equity dilution has also contributed to the stock decline.
One reason to like Riot is the company’s impending growth. For March, the company reported a hashing capacity of 4.3EH/s. The company expects capacity to increase to 12.8EH/s. Therefore, the best part of growth is still to come.
It’s worth noting that the company mined 511 Bitcoin in March. By tripling its capacity, Riot is positioned to mine 1,500 Bitcoin by January 2023. This would imply a strong growth in digital assets.
Once Bitcoin has a fresh break-out on the upside, Riot stock is another name that can double in the blink of an eye. Of course, it’s a high-beta stock and I would not consider a big plunge. However, some exposure around $10 can be considered.
I must add here that Riot has also pursued acquisitions in 2021. As the balance sheet digital assets swell, the company is likely to pursue its next stage of growth.
Coupang (NYSE:CPNG) has been on a decline, losing 51% year-to-date, but it still looks attractive. It seems that the worst is over.
One reason for the decline was lower growth expectations for 2022. Furthermore, the company also reported a wider adjusted EBITDA loss in 2021 as compared to 2020. Profitability is also a concern.
However, Coupang has guided for a lower adjusted EBITDA loss this year. At the same time, the company believes that the long-term EBITDA margin is likely to be in the range of 7% to 10%.
Also, the company has ample headroom for growth in the Korean markets. Currently, the company caters to only 50% of the country’s online shoppers.
It’s also worth noting that Coupang has pursued expansion beyond Korea. The company is establishing a presence in markets like Singapore and Japan. International expansion can also support long-term growth.
Coupang reported 9 million WOW members as of 2021. With the membership providing online shoppers with several incentives, membership is likely to swell. This will help in establishing a strong recurring revenue stream.
Overall, CPNG stock seems to have over-reacted on the downside. Current levels are attractive for exposure and the stock can potentially deliver 100% returns in the next 12-months.
Lucid (NASDAQ:LCID) stock is another name that has exhibited high volatility since listing.
On two occasions, the stock has surged above $50 before declining below $20 levels. Currently, LCID stock trades at $19, which seems like a good entry point.
In terms of news that disappointed the markets, Lucid provided weak guidance for 2022. The company expects production of 12,000 to 14,000 Lucid Air this year.
Last year, the company guided for delivery of 20,000 vehicles in 2022. However, this bad news is discounted in the recent correction.
The good news is that Lucid announced an agreement with the Saudi Arabia government for delivery of up to 100,000 electric vehicles through 2030. The company is already establishing its first international factory in Saudi Arabia.
For the company’s first model, customer reservations have already topped 25,000. This implies a potential revenue backlog of $2.4 billion.
Lucid’s first model was already rated by the EPA for a 520-mile range. This is the longest EV range ever rated by the EPA. With a technological and innovation edge, Lucid is likely to remain competitive in the long term.
As of December 2021, Lucid reported cash and equivalents of $6.2 billion. There is ample financial flexibility for manufacturing expansion in Arizona and Saudi.
While cash burn is likely to sustain, the markets will take LCID stock higher if delivery growth is encouraging.
Teladoc (NYSE:TDOC) has been punished by investors on growth and cash burn concerns. In the last six months, TDOC stock has plunged by 76%.
Recently, Cathie Wood doubled down on TDOC stock saying, “Teladoc is becoming the healthcare information backbone of the United States.”
Of course, Wood being bullish is not the only reason to consider the stock.
I believe that the sell-off is overdone and the stock is poised for a reversal. Some trading positions can be initiated around $35 levels.
For Q1 2022, Teladoc reported revenue of $565.4 million. On a year-on-year basis, revenue increased by 25%. The revenue was below analyst forecasts and this triggered the sharp correction.
However, the current price seems to have discounted full-year revenue guidance of $2.5 billion. Over the long term, there are two factors that can boost TDOC stock.
First, sustained growth in the U.S. membership fee is likely to support margins. Further, Teladoc is still at an early stage of international expansion.
Overall, I would still be cautious in considering a long-term position in the stock. However, there seems to be a good trading opportunity after the recent plunge.
After a correction of 68% in the last six months, there seems to be value in DraftKings (NASDAQ:DKNG) stock.
For 2021, DraftKings reported over 100% revenue growth to $1.3 billion. However, the stock continued to trend lower as EBITDA level losses widened significantly.
While the markets have been bearish, there are several positive factors to note. Increasingly, states are legalizing online gambling and sports betting. DraftKings believes that the total addressable market is in the range of $67 billion to $80 billion.
DraftKings has also reported wider adjusted EBITDA losses as marketing and sales expenses surge.
For the year ended December 2021, the company reported average revenue per monthly paying user of $67. On a year-on-year basis, the ARPU increased by 31%. Growth in ARPU is positive for long-term EBITDA margin once marketing expense flattens or declines.
Considering the addressable market, top-line growth and ARPU growth, DKNG stock seems attractive among risky stocks.
It’s another name that can double once there is renewed buying interest in growth stocks.
Palantir (NYSE:PLTR) has been sliding lower, trading around $11, there seems to be a good trading opportunity.
Recently, Piper Sandler analyst Weston Twigg raised the price target for PLTR stock to $16. This would imply around 50% upside potential. Twigg believes that growth in its U.S. government business is likely to help the company.
For 2021, Palantir reported revenue growth of 41% to $1.54 billion. Government revenue growth during the period was 47% as compared to commercial revenue growth of 34%. This underscores Twigg’s view on the company’s key growth driver.
For the same period, Palantir also reported an adjusted free cash flow of $424 million. It’s worth noting that the company has guided for 30% revenue growth through 2025. Therefore, even with some growth deceleration, the free cash flow outlook is likely to be robust.
Another point to note is that Palantir reported total customer growth of 71% in 2021. The company has witnessed sustained growth from existing cohorts. As the client base expands, there is scope for incremental revenue growth from existing customers.
Overall, PLTR stock seems to be in the oversold zone. I would not hesitate in initiating some long positions at current levels.
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