Volatility rises with the ever-increasing pace of panic in the markets. Investors who are fully invested will react negatively to the panic. With no free cash on hand, they cannot take advantage of the better stock prices. Conversely, investors who have cash available need not rush to “bet on black,” as actor Wesley Snipes famously said in the 1992 film, Passenger 57. Doing the homework to weigh the risky stocks with the best upside potential will pay off in the long run.
Before mid-February, markets looked like they would coast higher. That ended when the Treasury bond yields rose sharply. Markets beat up risky stocks with the highest beta. Those that rose faster than the index fell by more.
After that pain, I’ve found these seven risky stocks that investors may consider. Some of the picks may not be a high beta but might have more upside than anyone realizes. The stocks below represent a range of sectors and have unique potential catalysts ahead. They are:
- Alteryx (NYSE:AYX)
- Clorox (NYSE:CLX)
- Enlivex Therapeutics (NASDAQ:ENLV)
- Kingsoft Cloud Holdings (NASDAQ:KC)
- Magnite (NASDAQ:MGNI)
- Rocket Companies (NYSE:RKT)
- Unity Software (NYSE:U)
|Company||Sector||Overall Rating||Quality Score|
|Rocket Companies||Financial Services||1||22|
|Kingsoft Cloud Holdings||Technology||18||6|
The table above shows the range of the overall rating and quality scores of the risky stocks, as calculated by StockRover. Since some of the stocks have a low score, the implied risk is higher.
But that also means the reward should be higher than the average stock if the company’s underlying business improves more than the market expects.
Risky Stocks: Alteryx (AYX)
Before posting quarterly results, Alteryx traded at almost $140. The stock sank hard when the company issued disappointing guidance. For the fourth quarter, the company beat consensus expectations on revenue and profits.
Alteryx posted revenue growth of 19% for FY 2020 to $495.3 million. The Q1 guidance overshadowed the software company’s 32% growth in annual recurring revenue. Management forecast revenue of $104 million-$107 million, below the $118.6 million consensus estimate. It expects to lose up to 25 cents a share.
Chief Executive Officer Mark Anderson said that 2021 is a transformation year. He said that chief financial officers are prioritizing budget decisions on transformation priorities. So, investors will need to wait for Alteryx to build its team capabilities to support customers this year. However, shareholders are impatient, instead choosing to ignore Alteryx’s partnership with big names like Adobe (NASDAQ:ADBE) and Snowflake (NYSE:SNOW).
Those partners will offer many connectors and application programming interfaces (APIs). Such software developer kits will accelerate customer adoption for Alteryx solutions.
Clorox spiked at above $220 at the end of January, only to slump last month. The household and personal products firm posted Q2 2021 results. Its outlook is within or above the consensus estimates. CLX stock likely fell as investors sold on the news.
Clorox posted Q2 earnings of $2.03 a share. Revenue grew by 27% year-over-year to $1.84 billion.
Management’s IGNITE strategy aims to drive long-term shareholder value. If the plan works, Clorox will post accelerating long-term profitable growth ahead. The household cleaning supplier benefited from the higher demand for disinfectants. Yet the market underestimates how much it will benefit when the economy fully reopens. For example, new sanitary procedures at public places will drive demand. Restaurants, schools, and offices will all have deep-cleaning protocols. This will increase the demand for Clorox products.
Assuming that Clorox’s management team is underestimating its outlook for 2021, the stock is trading at a big discount. The downtrend that began in August 2020 when shares traded as high as $239.98 will end. The trajectory is up from here.
Enlivex Therapeutics (ENLV)
In the biotechnology space, Enlivex is a compelling microcap. ENLV spiked last month when the Israeli drugmaker posted trial results. It said that 16 severe and critical Covid-19 patients who received its experimental drug survived a 28-day Phase II clinical trial period.
Two of the critical case-patients were still in intensive care and on ventilators when the trial ended. Importantly, the average duration of hospitalization after subjects received Allocetra was 5.3 days.
The drug works by treating the over-response of the immune system. By tempering the cytokine storm, the company believes it may save the person from an over-reaction of the immune system.
Gilead Sciences (NASDAQ:GILD) and Regeneron (NASDAQ:REGN) also have anti-virals for treating infected Covid-19 patients. However, Enlivex’s mode of action is completely different. For biotech investors, all three drug firms are worth considering.
On Feb. 9, ENLV stock started its sell-off when the company raised $10 million. It sold 500,000 shares for $20. It will use the proceeds to fund its clinical, regulatory and research and development activities. Enlivix said it would fund manufacturing activities. But chances are good that the tiny firm will find a partner to help it make and distribute the drug.
Kingsoft Cloud (KC)
China-based firm Kingsoft Cloud posted Q3 revenue growing 73% year-over-year to $254.6 million. The gross margin was 6.5%. The company lost $15.5 million, which is a 6.1% net loss margin. This is a strong improvement from the 35% net loss margin posted last year.
Kingsoft benefited from increased demand from its existing client base. It also resumed its enterprise cloud projects. Investors may infer that as the vaccine rollout ends the pandemic lockdown, such project activity will grow.
Customers that had ongoing digital transformation plans will roll out Kingsoft’s solutions this year. The company’s CEO, Yulin Wang, said, “we will continue to invest in technology and expand our reach into select industries so that we can take advantage of the numerous growth opportunities around cloud computing that lie ahead.”
Ongoing earnings losses may limit the upside in KC stock. Yet because the market ignored the business momentum, the stock could keep rising from current levels.
Only three analysts have a price target on Kingsoft. It averages $59.33, according to Tipranks.
Investors have a short-term memory with Magnite. After posting strong fourth-quarter results and issuing strong revenue guidance, shares trended lower.
CEO Michael Barrett said, “As linear TV spend accelerates its move to ad-supported CTV, we believe growth from this secular trend will fuel our growth for the foreseeable future.” As the largest independent sell-side advertising platform, Magnite will continue to benefit from the growth of online video.
Magnite posted Q4 earnings-per-share of 5 cents on a 37% adjusted EBITDA margin. Shareholders should expect profits to expand. Management is forecasting revenue of $58 million-$62 million.
After it launched its marketplace in December 2020, it now features 20 premium publishing partners. Expectations for total ad spend accelerations are a positive tailwind for MGNI stock. Furthermore, the company’s SpotX acquisition, which cost it $1.17 billion, will strengthen its CTV platform.
Rocket Companies (RKT)
Online mortgage provider Rocket recently announced a special $1.11 per class A share of common stock when it posted Q4 results. With a short float of almost 40%, the special dividend will cost more for bears.
Digging deeper into the earnings results, revenue rose by 144% year-over-year to $4.7 billion. Adjusted net income grew by 350% year-over-year to $2.3 billion. Rocket posted record-breaking results, driven by its powerful technology platform. Though shares rose on the day of earnings, it still has a long way to go to shake out bears. Markets are betting against the mortgage market, as higher interest rates weaken demand.
Rocket’s superior digital experience will lead to market share losses for financial institutions. So, even when mortgage demand weakens, Rocket will take more market share as its competitors under-perform.
In a five-year discounted cash flow EBITDA exit model, assume a terminal EBITDA multiple of 4.1 times. RKT stock will have a fair value of around $27.
Unity Software (U)
Gaming software platform firm Unity Software slumped after posting Q4 and full-year 2020 financial results. Q4 revenue rose by 39% year-over-year, to $220.3 million. CFO Kim Jabal drew attention to the company’s current areas of focus in the report.
“Our fourth quarter revenue of $220.3 million, a 39% increase year-over-year, substantiates our focus on innovation and our powerful go-to-market strategy,” Jabal said.
Unity’s results are disappointing. It issued weak guidance. And while the 39% year-over-year growth is impressive, this is a drop from the previous quarter. The stock still trades at high price-to-sales multiples, too. As the market sells risky high-priced stocks, Unity stock will underperform. This creates a better entry point for investors watching this stock.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.