These high-risk stocks seem worthwhile if you’re okay with volatility.
Aggressive growth values are back in the penalty area. After a brief respite in March, funds like the Ark Innovation ETF (ticker: ARKK) resumed their bearish trajectory. With soaring inflation and rapidly rising interest rates, this investment environment tends to favor companies with strong earnings and cash flow today over future growth plans. That said, as speculative growth company prices continue to fall, it could create bargains that are just too good to pass up. After all, the best buys often come at times of peak pessimism, and things certainly look rather bleak in the realm of disruptive growth stocks right now. This makes these seven contrarian picks attractive for high-risk stocks with a strong upside.
StoneCo Ltd. (STNE)
StoneCo is a leading Brazilian fintech company. Shares jumped more than 50% in a matter of weeks in March after stronger-than-expected fourth-quarter results. However, the stock soon started falling again as there is simply no investor appetite for risky stocks, even though their fundamentals are improving. StoneCo grew revenue 87% year-over-year in the fourth quarter and forecast triple-digit growth for 2022 as it restarts some credit operations that were suspended last year. Meanwhile, the Brazilian economy is showing signs of life with soaring commodity prices. According to StoneCo CEO Thiago Piau’s own account, the company’s execution has been hit or miss in 2021 because it pursued too many new initiatives and spread itself too thin. But a refocused StoneCo could be set up for a 2022 return.
Unity Software Inc. (U)
The metaverse has gone from a hot investment topic to a topic of derision in record time. Just months after Meta Platforms Inc. (FB) moved to the Metaverse, investor interest in the concept dried up. But Meta seems determined to invest in the concept, and other initially unpopular bets by Mark Zuckerberg have ended up paying off in due course. If the Metaverse gets back on track, seek out Unity to thrive alongside Meta. Unity provides 3D graphics for games on platforms spanning consoles, PCs, mobile phones, and augmented and virtual reality. Since Unity is already the #1 graphics provider for mobile games, it’s only natural to move to the metaverse as the tech stack improves. In the meantime, Unity is now branching out into other businesses such as 3D e-commerce, architecture and design, and video animation.
Spotify Technology SA (SPOT)
It’s funny how the perception of risk changes over time. A year ago, many investors saw Spotify as a clear winner in music streaming, forced to follow the same path as Netflix Inc. (NFLX). Now that Spotify stock has crashed, people fear that Spotify will never become profitable. And TikTok is seen as a huge competitive threat. On the first point, due to having to share the majority of its revenue with record labels, Spotify’s profit margins have stagnated despite strong subscriber growth. This should be mitigated in due course as Spotify offers more of its own content, such as podcasts. It can also improve its margins by charging for music promotion services. And when it comes to TikTok, it’s certainly a rival for music discovery, but for consuming songs and full albums, the Spotify experience is a different animal. Spotify’s long-term prospects remain bright despite the sharp drop in its stock price.
Dutch Bros Inc. (BROS)
Dutch Bros is a small, fast-growing coffee and cold drinks chain that has specialized in marketing to a younger audience. Starbucks Corp. (SBUX) continues to dominate with older generations. But as Starbucks’ stock price plunge indicates, the ubiquitous coffeehouse chain could be reaching saturation point. Dutch Bros is what’s hot right now and should be set for many years of strong growth. The company completed its initial public offering with just 500 stores operating, but it plans to increase that number to 4,000 in the coming years. This gives investors a massive growth avenue to look forward to. Dutch Bros shares have held up well during the growth sell-off and are therefore still not cheap based on current operating results. But with analysts predicting revenue growth of 30% or more in the coming years, it could quickly hit its valuation.
Bark Inc. (BARK)
Bark is an omnichannel retailer focused on the pet market. It originally came to prominence with its BarkBox product, which provides products such as dog toys to consumers through a monthly subscription. Recently, Bark has started trying to expand its product line by also selling food. Some analysts had seen the original toy company as a niche or novelty that wasn’t big enough to support a large public company. However, food is a much broader industry, and consumers are willing to pay much higher prices for specialty products. As people treat their pets more like human companions and spend accordingly, Bark could be a major beneficiary. At this point, it’s still a speculative game, as there isn’t enough data to indicate whether the Eats business will take off. If so, however, Bark’s stock could break out of the niche.
Redfin Corp. (RDFN)
Investors want nothing to do with the housing market right now. With interest rates soaring, that’s understandable. Affordability is going to be a major issue as mortgage rates have hit their highest level in 15 years. However, people still need a place to live. So the Redfin real estate app and broker isn’t going anywhere. In fact, with affordability becoming the main issue, Redfin’s focus on a discount brokerage service could prove to be a significant advantage. Cutting commissions by 2% on a $500,000 house, for example, represents a saving of $10,000 for the consumer. Additionally, the company is currently launching rental listings, which could be a major growth driver given changing market conditions. Overall, with the company at just 1% market share nationwide, there is still a lot of growth to be had. While 2022 is likely to be a tough year for the housing market, the RDFN could be an opportunity for long-term investors as the market cools.
Coupang inc. (CPNG)
Coupang is the largest e-commerce player in South Korea. The company made a hot initial public offering, but shares have since fallen about two-thirds from their 2021 high. The usual online retail industry concerns apply. Coupang is currently not profitable, as it sacrifices profit margins for market share. It also invests heavily in logistics and execution, which hurts current results but could pay off in the longer term. With the stock price skidding, Coupang is now down to less than 2x sales. This has always been a good level to buy from the major e-commerce platforms. It’s a tough time for these companies as they face massive comparable sales figures from 2021 and also have to contend with runaway inflation. These headwinds will die down sooner or later, however, and e-commerce should resume its growth.
7 high-risk stocks for aggressive investors:
- StoneCo Ltd. (STNE)
- Unity Software Inc. (U)
- Spotify Technology SA (SPOT)
- Dutch Bros Inc. (BROS)
- Bark Inc. (BARK)
- Redfin Corp. (RDFN)
- Coupang inc. (CPNG)
Update on April 12, 2022: This story was published at an earlier date and has been updated with new information.