[Editor’s note: This article is regularly updated to include the most relevant information available.]
The concept behind lottery stocks is simple. These are high-risk, high-reward stocks, which could either drop by 50% in a hurry, or rise by 100%, 200%, 300% or more.
The rationale behind buying these lottery stocks is equally simple. Risk a tiny bit of money, for the shot of making a fortune, and do it enough times with enough carefully selected lottery stocks, and your overall returns should be massive.
Here’s the math. Say you put $10,000 in ten different lottery stocks. Say eight are duds, and lose 20% each. Now, say one is a winner, and rises 100%, and that one is a big winner, and rises 500%. In that scenario, the portfolio — which had eight losers — would still be up 44%.
Now, assume you do better. Say only five are duds and lose 20% each. Say three rise 50%, one rises 100%, and one rises 500%. That portfolio — still with five losers — would be up 65%.
You can keep doing this exercise over and over again. The point will never change. A carefully crafted portfolio of lottery stocks should outperform in a big way.
With that in mind, let’s take a look at 10 high-quality lottery stocks to consider adding to your portfolio.
Lottery Stocks to Buy: Nio (NIO)
Chinese premium electric vehicle maker Nio (NYSE:NIO) has had a tough run on Wall Street, defined by too much hype and too little performance. But, the hype is gone now and the company’s performance trends are turning around. That’s a recipe which implies that a huge rebound is in store for NIO stock.
Specifically, Chinese EV demand is showing signs of rebounding as: 1) China’s economy improves on the back of easing trade tensions and monetary policy, and 2) China’s government has stopped cutting EV subsidies. It also helps that Tesla’s (NASDAQ:TSLA) big push into the Chinese auto market is driving broader EV awareness.
Against that backdrop, Nio’s delivery trends are starting to improve. That is, for the first half of 2019, Nio’s delivery volumes were shrinking every month. Now, they’re growing every month. As EV demand continues to improve and as Nio launches a new vehicle in 2020, delivery volumes should continue to move higher, too.
Rebounding delivery volume trends in 2020 lay the groundwork for Nio stock to keep pushing back toward the $10 mark.
Bed Bath & Beyond (BBBY)
The multi-bagger thesis on Bed Bath & Beyond (NASDAQ:BBBY) is all about new management pioneering big change at the struggling department store operator.
That is, Bed Bath & Beyond’s new CEO — Mark Tritton — previously worked as the chief merchandise officer over at Target (NYSE:TGT). There he was instrumental in turning Target from a struggling, physical-first retailer, to an omni-channel retail powerhouse. It’s very likely that he could do the same at Bed Bath & Beyond, by rationalizing the retail footprint, streamlining investment into existing stores, improving the digital platform and building out more robust omni-channel capabilities.
Indeed, in the third-quarter earnings call, Tritton pointed to a few promising early data points, including strong Black Friday and Cyber Monday digital sales. But preliminary fourth-quarter figures indicate a comparable-store sales decline, driving the stock down to $12 on Feb. 12.
If Bed Bath & Beyond stabilizes sales and improves margins, then this stock could explode higher. Just look at what happened over at Target, and that stock was never as cheap as Bed Bath & Beyond is today.
Plug Power (PLUG)
The big idea behind Plug Power (NASDAQ:PLUG) is that, for the first time ever, large enterprises may broadly adopt hydrogen fuel cell (HFC) technology in their materials handling operations.
Demand for clean energy today is as strong as it’s ever been. That’s because both regulators and consumers are putting a lot of pressure on companies to cut their carbon emissions. But, doing so is a cost-intensive project, because clean energy isn’t cheap energy. So, companies aren’t just feeling pressure to hit sustainability targets — they are feeling pressure to do so without hurting the bottom line.
Plug Power’s hydrogen fuel cells give them one way to do just that. In the materials handling world, HFC forklifts are a cost-effective way to adopt clean energy because, relative to batteries, fuel cells: 1) have shorter recharging times, 2) require less maintenance, 3) have longer shelf-lives and 4) operate at full power for longer.
So, over the next few years as more and more companies seek cost-effective ways to cut emissions, more and more companies will simultaneously look toward deploying Plug Power fuel cells across their materials handling businesses. As they do, Plug Power’s revenues, profits and stock price should all march higher.
The management team over at struggling apparel retailer Express (NYSE:EXPR) recently announced a bold turnaround plan, and if it works, this stock could easily turn into a multi-bagger over the next few years.
The turnaround plan centers around right-sizing the retail footprint (Express is closing about 100 stores), gutting expenses (it plans to cut costs by up to $80 million) and streamlining product launches and marketing (it plans to improve product speed-to-market times by more than 20%).
Those are the right moves to be making. Less stores should lead to less overhead and salary expenses, higher sales per square foot and an improved margin profile. A slimmer operating model should also boost the margin profile. Meanwhile, a faster product launch cycle should help the brand stay relevant and keep customers more engaged.
As such, if management executes on these turnaround initiatives, then management’s 2022 targets for stabilized sales in the $2 billion range and a improved operating margin of roughly 5% seem totally doable. If the company does hit those marks, then my modeling suggests that $1 in earnings per share is doable by then.
If so, that would make today’s $4.45 price tag on Express stock seem way too cheap for its own good.
Stitch Fix (SFIX)
Personalized styling service Stitch Fix (NASDAQ:SFIX) is pioneering a new-and-improved way to shop, and as this new shopping method gains traction over the next several years, Stitch Fix’s revenues, profits and stock price will all soar higher.
The whole idea of Stitch Fix is to take all the annoying stuff out of shopping. Yes, shopping can be fun. But, it can also be time-consuming (you have to go to the mall, or browse through various clothes on a website), stressful (for many us, what we wear is important, and so picking what we wear can often be stressful) and produce undesirable outcomes (not many of us are fashion stylists, so the chance we pick a clothing item that doesn’t suit us best is fairly high).
Stitch Fix addresses these pain points through its personalized, online styling service. There’s no spending time on shopping, stressing about shopping or buying stuff that isn’t that great. You simply answer a few questions, have stylists personalize a wardrobe for you and receive new clothes from Stitch Fix on a semi-regular basis (keeping only what you like, and returning the rest).
It’s a good value prop. Sure, not everyone will sign up for these services, because: 1) some of us think we know our style better than anyone else and 2) Stitch Fix isn’t cheap. But, this is a huge market — $430 billion in the U.S. and United Kingdom alone — and Stitch Fix is small enough (only $1.6 billion in revenue) that even small penetration in the huge apparel market will lead to huge growth at the company.
That’s exactly what will happen. Over the next few years, Stitch Fix will climb to account for 2%-4% of the apparel retail market, which will be enough to propel huge revenue growth, huge profit growth and huge share price gains.
Although the headlines surrounding pot stocks remain largely negative — Aurora (NYSE:ACB) just pushed out its CEO and announced huge payroll cuts amid a broad restructuring plan — I remain cautiously optimistic that this beaten-up group can rebound big in 2020. If and when they do, small-cap Canadian cannabis producer OrganiGram (NASDAQ:OGI) could be one of the bigger gainers.
Most of the negative headlines in the cannabis industry are backward looking. If you look forward, things should get a lot better over the next few months. There will be a ton of new retail store openings throughout Canada. New edibles, drinks and vape products are coming to market. All the producers are cutting costs and pulling back on promotional activity.
All in all, things should get better. When they do, revenue and margin trends will improve, and pot stock prices will move higher.
In the market, OrganiGram is a standout because the company: 1) has broad exposure to the edibles market through its signature chocolate products, 2) has relatively low production costs and 3) is already profitable with one of the lowest marketing expense bases in the market.
Consequently, when pot stocks do bounce back in 2020, OGI stock could fly higher, especially given its relatively discounted valuation.
Luckin Coffee (LK)
Rapidly expanding Chinese coffee house operator Luckin Coffee (NASDAQ:LK) appears to be in the top of the first inning of a mega growth narrative.
That growth narrative is all about the explosion of coffee in China. Long story short, Chinese consumers have historically opted for tea over coffee. But this is no longer the case. Younger consumers are increasingly shifting toward coffee for their daily caffeine intake. This trend should persist, and if it does, then coffee drinking in China will go from a niche habit today, to a mainstream habit by 2025.
During this transition, Luckin Coffee will emerge as the go-to retail coffee brand in China. That’s because Luckin: 1) is the low-cost provider in the market with deeply discounted coffee drinks, 2) is the high-convenience provider in the market with a mobile-first ordering experience built for to-go orders and 3) is the innovator in the market, pushing forward on ready-to-drink coffee vending machines across China.
For all intents and purposes, then, Luckin Coffee will one day become the Starbucks (NASDAQ:SBUX) of China. Starbucks is a $100 billion-plus company. Luckin Coffee is a sub-$10 billion company. The sheer size of this discrepancy is why LK stock has such huge long-term potential.
There are four big reasons why beaten-up generics drug giant Teva (NYSE:TEVA) is an attractive lottery stock worth considering at current levels.
First, big opioid litigation may be moving into the rear-view window. That is, what was supposed to be dozens of state-level lawsuits over the opioid crisis, increasingly appears to be condensing into one streamlined lawsuit which would address all payments and penalties in one fell swoop.
Second, the company has significantly restructured its operating profile to be more cost-efficient. It has closed manufacturing sites, offices and labs. In total it has cut about $3 billion out of the expense model. Going forward, this company is well positioned to achieve improved profitability.
Third, new drugs in the company’s pipeline — specifically Ajovy and Austedo — are passing trials and will likely hit the market soon. This will provide a much-needed boost to the company’s revenue trajectory.
Fourth, the company is successfully de-leveraging its balance sheet. Net debt levels have dropped by more than 25% over the past two years. Continued de-leveraging over the next few quarters will support improving investor sentiment.
In sum, thanks to the four aforementioned catalysts, it looks like Teva stock could be in the midst of a big turnaround.
Stage Stores (SSI)
When it comes to lottery stocks, few are as much of a lottery as struggling department store operator Stage Stores (NYSE:SSI).
The story here is pretty simple. Stage Stores is yet another slow-to-adapt physical retailer that is getting squeezed out by the e-commerce wave. The balance sheet is also loaded up with debt. So, back in early 2019, it looked like bankruptcy was inevitable.
But, management came up with the brilliant idea of converting its full-price stores into off-price stores, with the rationale being that off-price retail has survived the e-commerce onslaught. Early results from these conversions in mid-2019 were very promising. Sales jumped 40% year-over-year at converted stores. SSI stock jumped on the idea that maybe this company does have a future after all.
Then, the rally quickly faded amid disappointing fourth-quarter results, which reinvigorated bankruptcy concerns. Lackluster cash flows may mean that the company doesn’t have enough resources to pull off the off-price conversions at scale.
Going forward, one of two things will happen. Either the company will pull together enough resources to continue the off-price conversions, sales will soar and the stock will roar back to $10. Or, the company’s resources will run dry, it will be forced to restructure its debt and equity shareholders will get wiped out.
In that sense, this stock is either going to rise 1,000% or drop 100%. At present, I think there’s a greater chance of the former happening than the latter, and that’s why I think the stock is worth a look.
One of the bigger companies on this list, visual search giant Pinterest (NYSE:PINS) is nonetheless a lottery stock because shares have huge upside potential from here.
There are two trends supporting broader consumer adoption of Pinterest. First, everything is becoming visual, including search, and Pinterest is presently the de facto visual search platform in many geographies. Second, curation is of increasing importance in an internet world where everything is accessible, all the time. And Pinterest is very good at curating pictures and inspirational ideas for its users.
As such, Pinterest usage should continue to rise over the next few years. I actually think this company can grow to somewhere around 500 million monthly active users by 2025. At the same time, Pinterest is a very natural place for ads, since consumers are already going to Pinterest with the intent of doing or finding some product or service. Consequently, Pinterest should have no trouble monetizing its users at scale.
Thus, by 2025, each one of Pinterest’s users will be extremely valuable. Over at Facebook (NASDAQ:FB), each one of its monthly active users is worth about $200. Let’s conservatively say Pinterest’s users in five years will be worth half that. At 500 million users, that implies a $50 billion market capitalization.
Pinterest presently features a $15 billion market cap. Consequently, the pathway toward huge upside in Pinterest stock is quite clear and compelling.
As of this writing, Luke Lango was long NIO, PLUG, LK, SSI, PINS and FB.