It May Be Time to Reassess the Risk and Reward of Innovation Stocks

The market may have priced in all the uncertainty with these leading edge companies 

In a research report at the end of February, Goldman Sachs (NYSE:GS) suggested that, while the market will still be volatile for quite some time, the markets may be past their most unstable period. That’s not much comfort for investors who are dealing with the aftermath of a significant market correction (perhaps for the first time).  

However, history tells investors that the market will rebound at some point. If you have a time horizon longer than a couple of years, and a substantial risk tolerance, it may be time to consider investing in innovation stocks. These stocks can give investors exposure to companies that are on the leading edge of technological solutions that have the potential for huge gains in the future. 

Even if you’re not ready to take a position in these stocks, here are three stocks that you may want to have on your watchlist.  

Luminar Technologies (NASDAQ:LAZR) - Autonomous driving is gaining momentum. In fact, many vehicles already have assisted driving features. And many automakers are or will be using LiDar sensors from Luminar Technologies. The company makes the industry’s highest performing and most cost-effective LiDAR sensors. However, LAZR stock is down 63% from its 52-week high. That may have to do with supply chain disruptions and concerns about raw material costs.  

Those are fair concerns. However, Luminar recently posted earnings that showed revenue of $12.3 million. This was a 408% year-over-year increase and put the company’s full-year revenue at the high end of its guidance. And at some point, the supply chain disruptions should work themselves out. 

Analysts give the stock a $24.90 price target which is a 98% gain from the stock’s current price.  

C3.ai Inc (NYSE:AI) - Artificial intelligence is another innovative trend that will be dominating the next decade. Investors who are looking for a way to invest in this trend is with C3ai. Inc. The company is attempting to tackle the complex problem of deploying AI across as an enterprise solution. Its solution is prebuilt or custom AI applications that support areas such as supply chain management and customer engagement.  

And some of the company’s largest clients are in the oil and gas industry which will continue to be a growth sector for the rest of 2022 and likely beyond.  

AI stock is down 80% from its 52-week high and analysts give the stock a 70% upside. However, unlike many small-cap companies, AI appears to be properly valued. The company is still not profitable, but it continues to increase revenue.  

Stem Inc (NYSE:STEM) - The last of the innovative stocks on this list is another small-cap stock. Stem operates in two innovative sectors: renewable energy and artificial intelligence (AI). The company is designing solutions to help capture the energy from solar and wind, both of which can be intermittent. Stem also uses AI to help companies maximized their energy output to minimize their energy costs.  

The stock is down 79% from its 52-week high. However, analysts love the stock and give it a $33.40 price target which gives it an upside of over 328%. The company will not be profitable for several years, but based on projected revenue, it does appear to be appropriately valued at this time. The stock does show growing interest from institutional investors which is a sign that the stock price may be ready to climb. However, short interest is over 13% which suggests that there will likely be some near-term volatility.