With the market pivoting to a more “risk-off” approach, investing in high risk stocks in recent months has been a challenge. Meme stock legends like AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) have sold off considerably.
That’s been the case with low-priced speculative plays too. Think clinical stage biotech stocks, or more general penny stocks. With the Federal Reserve planning to raise interest rates three times this year, this comes as no surprise. Rock-bottom interest rates played a big role in the market’s high appetite for risk. But with the proverbial punch bowl getting pulled from the table, fears run high that riskier plays will face even more downward pressure.
With this, is it time to buy treasury bills and head for the hills?
Not so fast. Stocks are expected to remain very volatile in the months ahead. Yet this may be an opportunity in disguise. Many stocks with solid company-specific catalysts have become oversold. Once Mr. Market realizes this and/or when positive developments emerge about these specific stocks, this could reverse in a big way.
So, which high risk stocks are worth a look today? These seven volatile names each have the potential to rocket higher once again.
- Big 5 Sporting Goods (NASDAQ:BGFV)
- Bakkt Holdings (NYSE:BKKT)
- Cinedigm (NASDAQ:CIDM)
- CoreCivic (NYSE:CXW)
- FuboTV (NYSE:FUBO)
- Novavax (NASDAQ:NVAX)
- Cassava Sciences (NASDAQ:SAVA)
High Risk Stocks: Big 5 Sporting Goods (BGFV)
To many, BGFV stock may be known best as a short-squeeze play. Shares in the sporting goods retailer have been making “to the moon moves” since 2020. That’s when materially stronger results started to send this stock (once trading for under $2 per share) to prices well above penny stock levels.
During 2021, it entered the crosshairs of short sellers, who saw its outstanding performance as little more than the product of one-and-done pandemic-era tailwinds. As a result, short interest shot up to as much as 44.8% of float by September. Yet as the company continued to perform well, despite challenges like supply chain disruptions, the shorts got pinched in early November. It zoomed from around $25 per share, to as much as $46.30 per share.
Since then, with risky plays pulling back, it’s now at around $20 per share. So, what’s the appeal with BGFV stock?
Even when taking expected earnings declines into account, shares still sport a dirt cheap valuation (4x earnings multiplier). Not only that, Big 5 has been putting its windfall profits to good use, via special dividends. That’s on top of its regular dividend (forward yield of 5.2%).
A bit player in a cyclical industry, admittedly its profitability could revert to the less impressive levels seen in the late 2010s. But it still has squeeze potential. It may also be a takeover target, for either a private equity firm or rival sporting goods company. With many ways for it to soar once more, consider it a risky play worth considering after its latest selloff.
Bakkt Holdings (BKKT)
The shift from “risk-on” to “risk-off” hasn’t only affected stocks. It’s had a negative impact on cryptocurrencies as well. In turn, that’s been bad news for crypto-related stocks, such as Bakkt Holdings.
Bakkt, whose platform helps individuals, merchants, and financial institutions facilitate crypto-related transactions, rallied nearly six-fold in late October/early November, as it locked down major partnership deals with payment giants like Mastercard (NYSE:MA) and Fiserv (NASDAQ:FISV). But with crypto falling out of favor, it has given back these gains, and again trades for single-digit prices.
Right now, it’s questionable whether crypto has bottomed out. Or, with the Fed becoming more hawkish, digital assets will have further room to fall. Yet if you believe crypto isn’t a fad, and that it will continue to become a greater part of the financial system? Then going long, Bakkt may be one of the best ways to make that wager.
If crypto keeps on growing in popularity, this financial technology (fintech) firm will continue to grow its user base. This means BKKT stock has a solid chance of getting back to its past high-water mark. Just bear in mind there’s still substantial downside risk, as shares could take another double-digit percentage dive if cryptocurrencies stay stuck in “bear market mode.”
High Risk Stocks: Cinedigm (CIDM)
CIDM stock has been on a rollercoaster ride for several years. Excitement over the growth of its over-the-top (OTT) streaming channels has at times sent to penny stock to prices near or above $3 per share. Investors in high risk stocks, who bought this during one of its drawdowns, have seen big profits taking advantage of its volatility.
Over the past two months, Cinedigm has again fallen back. Partially due to the waning popularity of riskier plays, but mainly due to a revenue miss when it last reported quarterly results. You can argue though that this was an overreaction. Revenue was still up 41% year-over-year. The company has also made progress getting out of the red, reporting breakeven earnings.
As ad-supported and subscription-based streaming continues to supplant television, even small streaming operators like this one stand to continue seeing above-average levels of revenue growth. Especially as this company, run by seasoned Hollywood veteran Chris McGurk, has built up its content library.
Given the outsized moves it makes on any news, stronger results next quarter could mean another big move for CIDM stock. Conversely, more disappointment would likely send it back well below $1 per share. Still, if you’re looking for a high-risk, high-return play with a long-term trend (the rise of streaming) behind it? Consider keeping this one on your radar.
Over the past year, contrarian investors have piled into CXW stock, a private prison stock. Not too long after taking office, President Joe Biden issued an executive order (EO) that resumed the phasing out the federal government’s use of private prisons. The Obama administration had made similar plans, but these were put on hold by the Trump administration.
As I discussed back in September, this development did not mean “game over” for the company, or its other publicly-traded competitor, The Geo Group (NYSE:GEO). Only a quarter of its revenue comes from the Federal Bureau of Prisons or the U.S. Marshals Services, the two agencies covered by Biden’s EO.
The market took a similar view, resulting in shares surging more than 60% since Biden shifted federal policy about for-profit prisons back to unfavorable. To some, with its partial recovery, it may seem like it’s too late to buy CoreCivic. But as a Seeking Alpha contributor recently argued, there’s still good reason to be bullish.
With the progress it’s made deleveraging, the company will soon be ready to return capital to shareholders again. Either through it bringing back its dividend, or through share repurchases. Although risk does still run high here, as the political backlash against this industry continues, a low valuation, plus its deleveraging catalyst, more than makes up for it.
High Risk Stocks: FuboTV (FUBO)
A former meme favorite, FUBO stock has become an underdog. The company, which operates a sports streaming/betting platform, continues to see very high rates of revenue growth. In the September quarter, revenue was up 156% year-over-year.
Unfortunately, with investors more concerns about the path to profitability for this and other sportsbook names, FuboTV plunged after it last reported results in November, and has continued to move lower. Today, it trades for around $13 per share, versus around $33 per share two months ago.
Yet, with this big drop, one analyst, JPMorgan’s (NYSE:JPM) Anna Lizzul, sees an opportunity. Seeing big potential with its focus on sports programming, Lizzul last month gave shares the equivalent to a “buy” rating, and a $28 per share price target. My InvestorPlace colleague Mark Hake is also a fan, arguing in a recent article that it’s a growth stock trading for a more than reasonable price. He too has a price target ($26.54 per share) well above current price levels.
In the next few quarters, if sales continue to rocket higher, and if FuboTV demonstrates it’s on the road to profitability, it may have room to bounce back from its recent heavy losses. With this, consider it one of the best opportunities out there among high risk stocks.
Despite making progress bringing its Covid-19 vaccine to both U.S. and international markets, investors are souring on Novavax stock. A big part of that is because it’s still attempting to bring its candidate to the U.S. market. Well after most of the country has been vaccinated.
I’ve argued that international sales will more than make up for weak domestic sales. However, there’s concern it will be unable to meet its global production target of 2 billion doses this year. Put it all together, it makes sense why shares have dipped to the mid-$130s per share (down from over $200 per share last month) and continue to trend lower.
If it faces more delays and/or manufacturing headwinds, more big declines could follow. Then again, if its situation improves, and it becomes more likely that it will hit revenue and earnings projections for 2021. A rebound may be in store. Based on analyst consensus for 2022 earnings ($25.71 per share), NVAX stock trades at an earnings multiple of around 8.8x.
In the event Novavax generates sales that enable it to meet earnings projections, it may be able to bounce back to $200 or even $250 per share. Cold comfort for those who bought it near its 52-week high ($331.68). But it’s a great opportunity for those buying out of favor names today.
High Risk Stocks: Cassava Sciences (SAVA)
In contrast to many of the stocks mentioned above, SAVA stock is a real “all or nothing” type of play. That is, if it finally overcomes the data manipulation allegations made it against it, and gets its Alzheimer’s drug Simulfilam approved. Then, with shares, up around 580% over the past year, it could experience another triple-digit percentage move higher.
Conversely, you can expect a big move in the other direction, if Simulfilam fails to get approved. If this happens, Cassava stock (at around $48 per share today) will likely crater back to single-digit prices. Along with this, the stock will remain highly volatile between now, and when its flagship candidate finally has its “moment of truth.”
Even so, while it’s a high-risk, high-return opportunity, I wouldn’t call it a moonshot. So far, the data manipulation allegations (possibly the product of a “short and distort” campaign) have yet to be proven right. With its Phase 3 trial for Simulfilam well underway, by year’s end we may know whether or not this clinical-stage company has a blockbuster drug on its hands.
Before buying this, it may be best to dig deeper into its candidate, and its chances of getting the green light from the Food and Drug Administration. Still, as one of the more promising high risk biotech plays, it’s definitely one to keep an eye on.
On the date of publication, Thomas Niel held long positions in CXW and GEO. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.