Understanding your risk tolerance is one of the keys to successful investing. The relationship between risk and reward was clearly on display in 2018. Equity investors were taken on a wild ride that was punctuated by a closing week that saw 1,000 point shifts in a single day. Times like these illustrate the reality of investor sentiment and the fear of missing out (FOMO). What may have started as end-of-the-year rebalancing and profit taking cascaded into a rout for some equities to close out the year.
The volatility that returned to the market last year also illustrates the fact that there is no such thing as a risk-free market. At the end of 2018, there were fears of interest rate hikes and rising inflation. The market was continuing to divine the tea leaves regarding the United States’ ongoing trade dispute with China.
Today, we’re seeing that inflation is still being held at bay, the Fed has done their part to quiet fears of impending interest rate hikes, and the U.S. and China continue to talk – which doesn’t mean a deal will happen, or even that one is close – but it beats the alternative. However, the market now faces new threats from political unrest in the Middle East that is adding momentum to higher seasonal oil prices. Internationally, there is still unrest over Brexit.
As the market gets ready to take a peek at 2019's first-quarter earnings report, it's a good time to remind investors that there are some risks that are well worth taking. In this report, we'll take a look at seven stocks that are considered "high risk" either because of the sector they're in or because of other factors. However, we'll also point out how each of them offers the potential for a big reward.
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- Chesapeake Energy
- Splunk
- GW Pharmaceuticals
- Chegg
- Advanced Micro Devices
- Blue Apron
- Lyft
#1 - Chesapeake Energy (OTCMKTS:CHKAQ)
CHESAPEAKE ENERGY (NYSE: CHK) - Chesapeake Energy is a possible play for investors looking to take advantage of the higher energy prices. CHK’s stock was a microcosm of the broader market in 2018. Shares of the company surged over 30% at the beginning of the year as the Trump administration’s tax policies and rising employment lifted energy prices. However, an unfortunately timed $4 billion buyout of WildHorse Resource Corporation and concerns of oversupply and a slowing economy in the U.S caused shares to drop more than 45% by the end of the year. Now, with energy prices once again on the rise, CHK’s stock is climbing as well. This year the stock is up over 60%, which is significantly higher than the industry average of just below 14%. Furthermore, analysts are seeing positive signs in a 2018 fourth-quarter earnings report that came in better than expected along with an increase in stock holdings from the company’s management. The risk for Chesapeake is leverage. The company’s debt levels are above the company’s target levels. The recent climb in oil prices is certainly helping CHK’s efforts to get their balance sheet in order. That could backfire however if oil prices endure another correction.
About Chesapeake Energy
Chesapeake Energy Corp. is an independent exploration and production company, which engages in acquisition, exploration and development of properties for the production of oil, natural gas and natural gas liquids from underground reservoirs. It focuses on projects located in Louisiana, Ohio, Oklahoma, Pennsylvania, Texas, and Wyoming.
Read More - Current Price
- $3.05
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#2 - Splunk (NASDAQ:SPLK)
SPLUNK (NASDAQ: SPLK) - Splunk is an “operational intelligence provider” and an industry leader in Security Information and Event Management (SIEM). SPLK has a breadth of product offerings in the cybersecurity market which is expected to be a $250 billion industry in five years. According to the company in their 2019 earnings call they solve “data challenges around IT operations and application delivery, security compliance and fraud; as well as business analytics and IoT (Internet of Things)”. The company is well-positioned to remain a leader in the cybersecurity space even as new competitors are emerging. At the moment, the bad news for Splunk is a question of valuation. The stock has been on a tear since the beginning of the year, climbing nearly 30%. This comes after a period of time when the stock had been coming down from lofty levels and looked to be stabilizing. This has investors a little nervous about whether the stock still has room to run. The good news is that the company is drawing attention as an acquisition target of companies such as Cisco (NASDAQ: CSCO) and International Business Machines (NYSE: IBM) which may provide the stock with some welcome room to run.
About Splunk
Splunk Inc, together with its subsidiaries, develops and markets cloud services and licensed software solutions in the United States and internationally. The company offers unified security and observability platform, including Splunk Security that helps security leaders fortify their organization's digital resilience by mitigating cyber risk and meeting compliance requirements; and Splunk Observability, which provides visibility across the full stack of infrastructure, applications, and the digital customer experience.
Read More - Current Price
- $156.90
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $157.00 (0.1% Upside)
#3 - GW Pharmaceuticals (NASDAQ:GWPH)
GW Pharmaceuticals (NASDAQ: GWPH) - If there’s one thing that 2018 has taught us is that cannabis – and all the related controversy around it – is not going away. However, controversy frequently brings opportunity and that is the case for GW Pharmaceuticals. Investing in biotech is already risky. GWPH takes that risk to a new level because it develops its drugs from marijuana. But whereas some companies in this space are in the penny stock category, GWPH actually has two products that show legitimate market potential. A leading candidate that is still in development is Epidiolex, which is designed to treat Dravet Syndrome and Lennox-Gastaut Syndrome. The other, Savilex, which is designed to treat the spasticity brought on by multiple sclerosis, is already on the market. GWPH is developing a compound based on Savilex that offers a potential treatment for epilepsy as well as autism spectrum disorders. In this competitive space, a promising pipeline has significant appeal to investors. If Epidiolex can get regulatory approval, the most likely path for the company will be as an acquisition target. And if that happens, the company’s stock may surge even beyond its impressive growth of nearly 70% since the beginning of the year.
About GW Pharmaceuticals
GW Pharmaceuticals plc, a biopharmaceutical company, focuses on discovering, developing, and commercializing novel therapeutics from its proprietary cannabinoid product platform in various disease areas. Its lead product is Epidiolex, an oral medicine for the treatment of seizures associated with Lennox-Gastaut syndrome, Dravet syndrome, or tuberous sclerosis complex.
Read More - Current Price
- $218.96
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Chegg (NYSE:CHGG)
Chegg (NYSE: CHGG) - If you haven’t yet noticed, there is a theme with high-risk stocks … the possibility of an acquisition. It’s one of the outcomes that make a stock like Chegg attractive to investors. Chegg is not a household name, but if you have a son or daughter in college then there’s a good chance that they are using Chegg products. After outsourcing its business in the online textbook rental space, the company is firmly entrenched in establishing a leadership position as a digital platform for U.S. college students. This platform, among other things, provides services such as SAT test preparation. If you’ve followed the news recently you can see why students may put a greater focus on their standardized tests now that there will be an intense focus on keeping the playing field level. The company went through many years of negative growth, but revenues are growing. The risk for Chegg comes from Amazon who is currently offering their Prime services to college students for free. However, some analysts believe that with Chegg already entrenched on college campuses (both virtual and online), Amazon may take the path of least resistance and acquire Chegg.
About Chegg
Chegg, Inc operates a direct-to-student learning platform that helps learners build essential life and job skills to accelerate their path from learning programs in the United States and internationally. Its subscription services include Chegg Study, which offers personalized step-by-step learning support from AI, computational engines, and subject matter experts, as well as Tinger Gold and DashPash Student services; Chegg Writing that provides students with a suite of tools, such as plagiarism detection scans, grammar and writing fluency checking, expert personalized writing feedback, and premium citation generation; Chegg Math, a step-by-step math problem solver and calculator that helps students to solve problems; Chegg Study Pack, a bundle of various subscription product offerings, including Chegg Study, Chegg Writing, and Chegg Math services; and Busuu, an online language learning platform that offers comprehensive support through self-paced lessons, live classes with expert tutors, and a community of members to practice alongside.
Read More - Current Price
- $1.74
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 7 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $4.69 (170.6% Upside)
#5 - Advanced Micro Devices (NASDAQ:AMD)
Advanced Micro Devices (NASDAQ: AMD) - Has the opportunity to profit on AMD come and gone? It's hard to say. AMD's stock was the top stock on the S&P 500 for 2018, and the stock continues to show strength. Through the first quarter of 2019, AMD remains in the top five of the S&P 500. What is becoming clear is that this tiny semiconductor company is now gaining market share in the CPU and GPU markets. While it's hard to call a $30 billion company a small company, it is playing in a sector with competitors that are valued at $100 billion. That disparity makes the math pretty simple, and compelling, for investors. If AMD can continue to grow their market share the stock will have plenty of room to run. The concern and the risk is in the company’s valuation. Even if some analysts assume the company’s most aggressive growth forecasts are accurate, the stock is currently bumping up against the top limit of their price target. This would suggest that a correction could be in the works. But when and how much are questions that are yet to be answered. A positive earnings report may spur the stock even higher.
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $137.60
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 29 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $192.79 (40.1% Upside)
#6 - Blue Apron (NYSE:APRN)
Blue Apron (NYSE: APRN) - The risk for meal kit maker Blue Apron is a crowded, highly competitive sector. And when you consider that companies like Grub Hub are making it possible for consumers to have their favorite restaurant food delivered to their doorstep, there is an existential threat that convenience may trump fresh ingredients in the race to consumers’ wallets. Nevertheless, there is a market with consumers who love to cook and experiment with new things, but need a place to start. Consumers are also still intensely concerned about the sustainability of the food they eat. Blue Apron has recently hired the former CEO of Etsy to be a turnaround specialist. The challenge of increasing sales while at the same time cutting costs and improving profitability makes investing in APRN no sure thing at all. In fact, in their most recent quarter where they reported, the company was still showing a 20% decline in revenue. But the category isn’t going away and Blue Apron doesn’t have to be the leader. They just have to be relevant.
About Blue Apron
Blue Apron Holdings, Inc operates a direct-to-consumer platform that delivers original recipes with fresh and seasonal ingredients. The company also operates Blue Apron Market, an e-commerce market that provides cooking tools, utensils, pantry items, and other products. In addition, it offers Blue Apron Wine, a direct-to-consumer wine delivery service that sells wines, which can be paired with its meals.
Read More - Current Price
- $12.99
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#7 - Lyft (NASDAQ:LYFT)
Lyft (NASDAQ: LYFT) - Lyft is a small ($20 billion), but growing player in the ride-sharing space. Lyft operates exclusively in the United States and Canada where they currently have about 32% market share. The optimism for the stock centers on the long-term outlook for LYFT which is proving to be a formidable competitor for Uber in their shared markets. Over the long term, analysts are projecting Lyft to become an $80 billion giant in the category. Based on its current valuation, that $80 billion number represents quite a nice ROI. However, it has to get there first. And that is proving to be a challenge. After their initial IPO led to what investors felt was an unsustainable valuation (currently they have a price to sales ratio of around 10). Not surprisingly, the stock has plummeted. It is currently down over 20% since its IPO at the end of March. Plus, space is expected to become more crowded in the years to come. One of the axioms of investing is not to try and catch a falling knife, but that is what investors will need to be attempting if they are looking to invest in Lyft.
About Lyft
Lyft, Inc operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It operates multimodal transportation networks that offer access to various transportation options through the Lyft platform and mobile-based applications. The company's platform provides a ridesharing marketplace, which connects drivers with riders; Express Drive, a car rental program for drivers; and a network of shared bikes and scooters in various cities to address the needs of riders for short trips.
Read More - Current Price
- $16.77
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 28 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $17.48 (4.3% Upside)
The bottom line for investors is simple. Investing comes with risk, particularly if you’re investing in equities. And while it can be tempting during volatile times to pull out of the market, many investors know that you can’t win if you don’t play. And for some of these investors, their biggest risks have turned into their biggest rewards.
One of the keys to successful investing is the willingness to change course. That is particularly true with your riskier investments. If you do decide to invest in any of the stocks above, or other high-risk stocks are sure to do your due diligence and make sure that you have a means of staying on top of news surrounding your stock selections. A great way to do that is through our MarketBeat Daily Premium service. With this service, you have all the information you need to make informed trading decisions, including all the breaking news and analysts’ coverage of your current portfolio and watch list in one location.
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