When it comes to long term investment, it’s important to consider the business fundamentals. I would only hold high quality blue-chip and growth stocks in my portfolio. However, markets provide some attractive opportunities to make quick money in speculative stocks. As an active investor, it makes sense to grab these opportunities to boost portfolio returns.
In the market euphoria of 2021, speculative stock investors made a killing. I don’t expect that frenzy to return anytime soon. However, there are oversold speculative stocks that seem poised for a strong reversal rally. With relatively high short interest in some speculative stocks, the rally can be massive in a matter of few weeks or months.
It’s worth noting that the Standards and Practices (S&P) 500 index has trended higher by 12% for year-to-date. Historically, the last quarter has been good for the markets. I would bet on the markets trending higher and returns can potentially be magnified by exposure to these speculative stocks.
Speculative Stocks Ready for a Rally: Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) stock has plunged by 62% in the last 12 months. Of course, LCID stock is not among the EV stocks that I would buy and hold. However, with short interest at 24%, I believe that a short squeeze rally is imminent from deeply oversold levels.
I believe that there are two factors that have resulted in LCID stock trending lower. First, the company is well behind initial estimates when it comes to production and deliveries growth. Further, Lucid has seen massive cash burn, which will continue for the next few years.
For now, the company has a cash buffer of $6.25 billion. This will cover for the cash burn in the next 12 to 18 months. Further, Lucid expects production of more than 10,000 vehicles for the year. An encouraging guidance for 2024 is a potential catalyst for the stock surging higher. I would not be surprised if there is a 50% rally from current levels.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) is another name among speculative stocks that seems poised for a strong rally. The cannabis stock looks deeply undervalued at current levels of $2.40. With a short interest of 15%, I would initiate some speculative position.
I must add here that I would not dismiss Tilray as a purely speculative name. Regulatory headwinds related to the cannabis industry has impacted the company’s growth prospects. However, Tilray is diversifying for growth.
To put things into perspective, Tilray acquired eight beer and beverage brands from Anheuser-Busch (NYSE:BUD). Along with few other acquisitions in the recent past, the company is among the leading players in the craft brewing industry. Pro-forma beverage and alcohol revenue is likely at $300 million. This segment will boost growth even as the cannabis business remains subdued.
An important point to note is that the acquisitions have ensured that Tilray builds a strong strategic infrastructure in the United States. Once cannabis is legalized at the federal level, growth can be aggressive.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) stock has plunged by 66% in the last 12 months. I believe that a reversal rally is impending for this speculative stock. Like the other names discussed, CHPT stock also has a high short interest of 21%, which can potentially trigger a short squeeze rally.
As an overview, ChargePoint is a leader in North America for all-purpose charging. Further, the company has expanded into 16 European countries. This implies a big addressable market for growth.
However, there are two concerns that the stock has discounted. First, competition in the EV charging industry is intense and is likely to impact growth. Further, ChargePoint continues to report significant operating level losses. There is a strong cash for an extended period of equity dilution to support operations.
Even after considering these factors, CHPT stock looks attractively valued. Sustained growth in recurring revenue can support EBITDA margin improvement.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
