With such a terrible health calamity that afflicted us all last year, I don’t want to make too many strong pronouncements about when we might return to normal. However, I can’t help but notice some encouraging signs. Whether they’re encouraging enough for you to justify taking a shot on risky stocks to buy is up to you. But if you don’t mind volatility, there may be a chance for upside ahead.
First and foremost, new cases of the novel coronavirus continue to decline in the U.S., according to the latest data from the Centers for Disease Control and Prevention. This alone is not a guarantee that risky stocks to buy will continue to flourish. As well, new Covid-19 strains are problematic because they appear to reduce immune response. Still, we’re so far avoiding the explosive resurgences of the past.
Second, the vaccine rollout has been very encouraging. I know this gets caught up in the political vitriol but I don’t think it needs to be one way or the other. I credit the Trump administration for initiating Operation Warp Speed and setting the foundation for the Biden administration to build upon. Democrat or Republican, we’re on the same team. Naturally, this long-term solution bodes well for wagering on risky stocks today.
Third, we haven’t seen the political apocalypse that many have been fearing. After the Capitol riot, Americans of all persuasions were rightfully anxious whether we could have some normalcy in our ideological discourses. So far, I believe we have responded very well to the transition of power. That’s a positive not only for risky stocks but for equities in general.
On a fourth note, some people are ready to return to their normal lives, though this sentiment is split across demographics. But that tells me there’s a bias toward pushing for normalization. One year ago, it seemed the majority wanted to stay at home. So, if you’re an intrepid investor, here are risky stocks to consider on a potential reopening:
- Darden Restaurants (NYSE:DRI)
- EnLink Midstream (NYSE:ENLC)
- MGM Resorts (NYSE:MGM)
- Ammo, Inc. (NASDAQ:POWW)
- Six Flags Entertainment (NYSE:SIX)
- Drive Shack (NYSE:DS)
- Spirit Airlines (NYSE:SAVE)
A caveat before we get into it: I want to stress that these are not necessarily names that I would personally buy. Rather, it’s based on the theme that if you believe that a full reopening is just over the horizon, these risky stocks may see robust upside.
Darden Restaurants (DRI)
According to the Bureau of Transportation Statistics, the daily average number of people staying home dropped 28% from the week beginning Dec. 20, 2020 to the week beginning Feb. 28, 2021. This is similar in magnitude to what we saw in late March through May of last year, when pent-up demand made folks stir crazy.
But this time, it doesn’t appear that a resurgence in Covid-19 cases is imminent. Therefore, daring investors may want to consider Darden Restaurants and DRI stock.
Throughout the country, many states and local jurisdictions are relaxing their Covid protocols. Just as importantly, as BTS data demonstrates, people are getting out of their homes. They’re ready to reclaim their personal lives if not their professional schedules. Fundamentally, this should augur well for DRI stock.
Of course, Darden is one of the risky stocks because the underlying restaurant sector has been so vulnerable to the pandemic. But as a big publicly traded company, Darden might win out in this war of attrition.
EnLink Midstream (ENLC)
Throughout most of last year, I did not have the warm and fuzzies about the oil sector. Though it was a one-time incident, just the idea that crude oil dipped below zero suggested a severe demand erosion. At the time, I thought that companies such as EnLink Midstream were on the extreme end of risky stocks. Still, I had a change of heart.
Indeed, I took a gamble and bought ENLC stock. While the ride has been choppy and it still presents dangers, I’m glad I bought it and I might add to my position. Anecdotally, I’ve noticed traffic pick up significantly as I’m sure you’re witnessing from your part of town. I’d estimate that traffic is about 85% of pre-pandemic levels.
According to the BTS, the facts might not be that far off from my assessment. For the week beginning Feb. 28, 2021 and compared to the year-ago period, the difference in trip frequencies with distances of one to 25 miles is only about 2%. Logically, this translates to people hitting the road, which suggests continued upside for ENLC stock.
MGM Resorts (MGM)
Back when the pandemic first hit us, I didn’t want anything to do with MGM Resorts. It’s not that I had a vendetta against the company – far from it. As a Las Vegas icon, the brand is world famous, which by logical deduction made MGM stock a worthy consideration. But with a mysterious virus sickening and killing people, the last thing you wanted was to engage this riskiest of risky stocks.
But with Covid-19 cases declining, it might be time to rethink MGM stock. Clearly, many already have, with shares up nearly 35% year-to-date. Yet there could be more gains ahead as other areas of the nation reopen. For instance, private jet service JSX will offer flights between San Diego and Las Vegas, with one-way tickets starting at $99. If the demand to mingle in Sin City didn’t exist, I doubt this flight would either.
Still, this is one of the more questionable among risky stocks. According to the Las Vegas Convention and Visitors Authority, visitor volume in January 2021, while improved at nearly 1.3 million, was down almost 64% year-over-year. More work needs to be done but that also means potential upside for those who are bullish ahead of the crowd.
Ammo, Inc. (POWW)
While a return to normal has positive implications, Ammo, Inc. explores the cynical side of risky stocks to consider for a possible reopening.
I think we’ve got to be honest and recognize that there’s a good portion of America that just wants to be left alone and not deal with societal issues. Of course, many in this category tend to buy firearms and ammunition, which bolsters the case for POWW stock.
But there are other cases of Americans being scapegoated and targeted for their ethnic origin and just random violence overall. I’m hearing with alarming frequency about vicious attacks on elderly women. Even among criminals, there has to be a code of honor – no women, no children, no elderly folks.
That some Americans have devolved into subhuman trash speaks volumes about what our society is turning into. If there’s a bright side, POWW stock and its ilk will accrue it.
Six Flags Entertainment (SIX)
Let’s lighten up the mood a bit and discuss Six Flags Entertainment. No, I can’t bump this up from one of the risky stocks into a higher-confidence category. It’s not like Disney (NYSE:DIS) or Comcast (NASDAQ:CMCSA), as these two resort giants also have viable media entertainment businesses. With SIX stock, it’s mostly driven by theme-park-generated revenue. Unfortunately, that does make it dangerous relative to its diversified competitors.
Nevertheless, SIX stock has been one of the top performers this year, gaining over 47% YTD. An encouraging news item came recently, when management disclosed its reopening plans for its Mexico and California theme parks.
Obviously, we have two competing narratives here. On one end, we have pent-up consumer demand. It’s not just from the adults but especially the kids, who put their lives on hold for a year. And believe me, when you’re a kid, one year might as well be a lifetime. Mathematically, for a 10-year old, it’s 10% of their life thus far.
But on the other end, surveys suggest that people are still not comfortable being around others. Ultimately, this is one of those risky stocks that should be left to those with the highest conviction.
Drive Shack (DS)
As an entertainment center and golf range, Drive Shack offered the perfect outlet for many worker bees to let off some steam following a tough day at the office. For companies, it provided a platform for corporate outings and team-building exercises. Plus, even if you don’t like golf, there was plenty of food and beverages to enjoy.
Sadly, with the pandemic knocking out non-essential businesses, sentiment for DS stock took a massive hit. Hanging with your co-workers was really out of the question now that your colleagues were stuck working from home. Besides, it wouldn’t look good if your manager found out that you got other workers sick.
But now that we are returning to normal, DS stock has been a beneficiary of the comeback narrative. On a YTD basis, shares are up more than 48%. At the same time, Drive Shack represents one of the risky stocks because it’s still down from the beginning of January 2020 price.
Also, we don’t exactly know when everyone will return to the office. If we see a hybrid model where workers continue to work some days from home, it could negatively affect Drive Shack’s recovery efforts.
Spirit Airlines (SAVE)
When we got hit with Covid-19, one of the last places you wanted to be in – aside from a cruise ship – was a commercial jetliner. The thing with a cruise ship is that it’s a vacation platform. With an airplane, there could be myriad reasons why you’re onboard. So, I can only imagine having to fly during this crisis and I’m glad I didn’t have to.
Not surprisingly, I didn’t have a bullish take on Spirit Airlines or the industry for that matter. Even in the best of times, air travel just stinks. But having to sit almost on top of each other during a pandemic? It just didn’t look good for SAVE stock.
However, you must look at the data before making a judgment call. And in March so far, air passenger volume has ticked up encouragingly – much better than I anticipated. If we see more of this upward trend, you may want to take a stab at SAVE stock.
Still, you got to be careful. A resurgence of Covid-19, especially with these new variants, could end up seeing the airliners hitting massive turbulence.
On the date of publication, Josh Enomoto held a long position in ENLC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.