In this article, we will look at 10 best high risk high reward stocks to buy now. If you want to explore similar stocks, you can also read 5 Best High Risk High Reward Stocks to Buy Now.
Growth stocks are taking a beating as investors continue to shift their focus from growth to value. As of July 27, 2022, the tech-heavy Nasdaq Composite has lost more than 25% year to date. The panicky situation in the tech sector is causing investors to either abandon the group or be cautious when putting their money into it.
How To Position Your Portfolio in A Bear Market According to Ken Fisher
Billionaire investor, founder of Fisher Asset Management, and pioneer of the price-to-sales ratio technique for valuing stocks, Ken Fisher, shared his wisdom on his YouTube channel where he explained how investors can navigate a bear market. Mr. Fisher is of the belief that this bear market is bottoming and as soon as it bottoms, growth stocks that are high-risk investments right now will help investors realize fruitful gains in the rebound. In a recent video, he said:
“This has been a year where there’s a presumption that value is doing better than growth and that’s true but it’s also not true. Value is doing better than growth if you take the categories from the beginning of the year, value is down but not done nearly as much as growth stocks are down and of course, growth stocks are heavily led by technology, value stocks are heavily led by energy and banks, and then a little bit materials, and after that industrials. The high price of oils helps the energy and high price of commodities helps the materials. Technology stocks doing badly and have hurt overall growth because most of growth is technology. Here’s what I want you to see in a very very high correlation. Every day where the stock market falls value does better than growth and often when it falls a lot, by a lot. Every day when the market’s gone up, growth has done better than value, and when it’s gone up more, by a lot. That correlation is so high that it’s telling you something. It’s telling you that when we get to a bottom, we can come back to when that might be, but when we get to a bottom and the market starts to go back up, it will be growth that’s leading not value, and yet most people think they should be in value…
So if you’re heavy in value now you’ve been doing relatively well compared to the market. You’re down but not down as much you might want to switch out of that as you get to where we would have a bottom and move to growth because coming up the other side, that would tend to be true. Now it is normally true that coming off the bottom of bear markets the category that’s done the worst going down the categories that have done the worst going down tend to do the best in the initial months and sometimes longer… When we look at a period where we’ve gone into a bear market, meaning the market on a global peak has been down and crossed from 20 over into down a little more and therefore officially into a bear market. The time you’ve gotten to the absolute bottom of that bear market hasn’t been very long. The median time period of that is a month, and the mean average time period, that’s about double that. We crossed over that line on june 14th. For most bear markets, once you cross over that 20-down mark and you’re officially in a bear market, it’s not very long until the bottom… When you look at 6, 12, 24, and 36-month periods looking into the future, returns are overwhelmingly positive and double digits so in each of those categories (Growth). Therefore if you’ve been oriented toward value now might be a good time to contemplate being more prone to growth. If you’ve been overweight to growth and tech you’re actually probably postured pretty well for the move that occurs on the other side…”
While investors are avoiding growth stocks altogether, certain tech companies such as Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG) are on their radars because they are relatively safer.
Our Methodology
To determine the 10 best high-risk high reward stocks to buy now, we researched companies that are expected to flourish in the long term because of the products they offer. Our list contains a mix of cloud computing, cybersecurity, and hardware names that are developing disruptive technologies and experiencing strong demand for their products. Along with each stock, we have mentioned the market sentiment around it and its trailing twelve-month price-to-sales multiples. The price-to-sales multiple is useful in valuing growth stocks because it represents how much investors are willing to pay for a company’s revenues.
Best High Risk High Reward Stocks to Buy Now
10. Vuzix Corporation (NASDAQ:VUZI)
Price-to-Sales Ratio as of August 1: 44.15
Number of Hedge Fund Holders: 7
Vuzix Corporation (NASDAQ:VUZI) designs, manufactures, markets, and sells augmented reality, wearable display, and computing devices for consumer and enterprise markets in North America, the Asia-Pacific, Europe, and internationally. Industries worldwide are adopting and integrating these technologies for mixed reality applications, however, they still have room to grow. A major event that will fuel the growth of augmented reality and similar technologies is the building of the metaverse, but that is stretched out into the future. Like its peers, Vuzix Corporation (NASDAQ:VUZI) has been taking a beating in 2022. As of August 1, the stock has lost 10.54% year to date and has a 52-week range of $3.88 to $16.20.
Vuzix Corporation (NASDAQ:VUZI) is reporting strong demand for its products. This July, the company announced that it has started delivering a smart glasses order of $0.35 million to a U.S. multinational retailer which will be integrating the technology in its warehousing and logistics needs. On July 15, the company announced that it has secured a volume OEM purchase order for custom designed waveguides from a Fortune 50 U.S. technology company, which plans to use them in their own head mounted display product development program. Vuzix Corporation (NASDAQ:VUZI) announced that it plans to significantly increase its waveguide production capacity over the next year and in the future.
At the close of Q1 2022, 7 hedge funds held stakes in Vuzix Corporation (NASDAQ:VUZI). The total value of these stakes amounted to $55.22 million. This is compared to 8 hedge funds in Q4 2021 with stakes worth $69.65 million.
In the second quarter of 2022, ARK Investment Management raised its stakes in Vuzix Corporation (NASDAQ:VUZI) by 9%, bringing them to $47.83 million. As of June 30, the fund owns roughly 7.35 million shares of Vuzix Corporation (NASDAQ:VUZI) and is the largest shareholder in the company.
9. IonQ, Inc. (NYSE:IONQ)
Price-to-Sales Ratio as of August 1: 264.56
Number of Hedge Fund Holders: 21
IonQ Inc. (NYSE:IONQ) is a young and leading quantum computing company that engages in the development of general-purpose quantum computing systems. The company’s quantum computers are used by leading cloud platform providers such as Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG).
Quantum computing and high-performance computing are gaining popularity as the world becomes more data-driven and businesses adopt cloud applications to handle intensive workloads. Companies like IonQ, Inc. (NYSE:IONQ) are positioned well to capture more market share but at the same time run the risk of experiencing losses in an economic slowdown.
Wall Street is bullish on the quantum computing space but is also wary of the cyclicality of the business. On June 8, Needham analyst N. Quinn Bolton initiated coverage of IonQ, Inc. (NYSE:IONQ) with a Buy rating and a $9 price target. The analyst sees IonQ, Inc. (NYSE:IONQ) as a market leader in ion trap quantum computers. The analyst cemented his bull case by referring to the company’s “strong” balance sheet which has enough cash flows to fund operations. However, with rising fears around a declining job market, some analysts are viewing IonQ, Inc. (NYSE:IONQ) as a risky investment right now. On July 15, Goldman Sachs analyst Toshiya Hari lowered his price target on IonQ, Inc. (NYSE:IONQ) to $8 from $10 and reiterated a Neutral rating on the shares.
At the close of Q1 2022, 21 hedge funds held stakes in IonQ, Inc. (NYSE:IONQ) worth $104.98 million. This is compared to 19 positions in the previous quarter with stakes worth $184.23 million.
8. SentinelOne, Inc. (NYSE:S)
Price-to-Sales Ratio as of August 1: 27.56
Number of Hedge Fund Holders: 38
SentinelOne, Inc. (NYSE:S) operates as a cybersecurity provider in the United States and internationally. The company’s Extended Detection and Response platform delivers AI-powered autonomous threat prevention, detection, and response capabilities across an organization’s endpoints and cloud workloads. On June 2, BTIG analyst Gray Powell lowered his price target on SentinelOne, Inc. (NYSE:S) to $37 from $48 to reflect a contraction in multiples across the software industry but reiterated a Buy rating on the shares. Powell noted that demand for the company’s endpoint business remains strong.
Wall Street sees growth in the cybersecurity industry to suffer from a recession but remains positive on SentinelOne, Inc. (NYSE:S). On July 22, Citi analyst Fatima Boolani slashed her price target on SentinelOne, Inc. (NYSE:S) to $28 from $30 but reiterated a Neutral rating on the shares.
At the end of Q1 2022, 38 hedge funds held stakes in SentinelOne, Inc. (NYSE:S) worth $2.23 billion. This is compared to 39 positions in the previous quarter with stakes worth $3.01 billion.
As of March 31, Third Point owns more than 26.3 million shares of SentinelOne, Inc. (NYSE:S) and is the largest shareholder in the company. The fund’s stakes in the company are valued at $1.01 billion and the investment covers 13.26% of Dan Loeb’s 13F portfolio.
Here is what ClearBridge Investments had to say about SentinelOne, Inc. (NYSE:S) in its fourth-quarter 2021 investor letter:
“We added six new positions in the fourth quarter. We see next-generation cybersecurity provider SentinelOne, although early in its growth lifecycle, as capable of taking share from legacy players in the antivirus and broader cybersecurity industry.”
7. Zscaler, Inc. (NASDAQ:ZS)
Price-to-Sales Ratio as of August 1: 22.34
Number of Hedge Fund Holders: 39
Zscaler, Inc. (NASDAQ:ZS) is a leading cloud security company with operations worldwide. The cybersecurity industry is also one that will be heavily impacted by an economic downturn, and Zscaler, Inc. (NASDAQ:ZS) is suffering at the expense of macro pressures. As of August 1, Zscaler, Inc. (NASDAQ:ZS) has dipped by 49.14% year to date.
Wall Street remains bullish on cybersecurity names like Zscaler, Inc. (NASDAQ:ZS) and see the stock surviving a recession. This July, Truist analyst Joel Fishbein lowered his price target on Zscaler, Inc. (NASDAQ:ZS) to $250 from $275 but maintained a Buy rating on the shares. Fishbein expects cybersecurity spending to remain robust even with prevailing macro uncertainty. However, the analyst noted that a declining job market can cause a negative impact on the company’s performance during an economic slowdown.
On August 1, Zscaler, Inc. (NASDAQ:ZS) announced that Zscaler Internet Access, the company’s suite of AI-powered security tools, achieved authorization from the Federal Risk and Authorization Management Program. The Zscaler Internet Access is currently the only Secure Access Service Edge Trusted Internet Connections 3.0 solution that has received the highest authorization to operate by the FedRAMP.
At the end of Q1 2022, 39 hedge funds were bullish on Zscaler, Inc. (NASDAQ:ZS) and held stakes worth $1.42 billion in the company. This is compared to 31 positions in the preceding quarter with stakes worth $1.74 billion.
In the first quarter of 2022, D E Shaw raised its stakes in Zscaler, Inc. (NASDAQ:ZS) by 42%, bringing them to $312.95 million. As of March 31, D E Shaw owns 1.29 million shares of Zscaler, Inc. (NASDAQ:ZS) and is the largest shareholder in the company.
6. Cloudflare, Inc. (NYSE:NET)
Price-to-Sales Ratio as of August 1: 21.09
Number of Hedge Fund Holders: 44
Cloudflare, Inc. (NYSE:NET) operates as a cloud services provider that delivers a range of services to businesses worldwide. The company primarily offers security solutions for the cloud. Its security products include cloud firewall, bot management, distributed denial of service, IoT, SSL/TLS, secure origin connection, and rate limiting products. The adoption of cloud-based solutions has helped enterprises optimize their workloads but also exposed them to cyber threats and vulnerabilities. Companies like Cloudflare, Inc. (NYSE:NET) provide services to ensure these vulnerabilities are not exploited by hackers.
As of August 1, Cloudflare, Inc. (NYSE:NET) has lost roughly 60% of its value year to date and its share price has remained rather volatile in 2022. The stock has a 52-week range of $38.96 to $221.64. Regardless, Wall Street analysts see potential in the company. On July 25, RBC Capital analyst Matthew Hedberg slashed his price target on Cloudflare, Inc. (NYSE:NET) to $62 from $100, on account of peer multiple compressions, but reiterated an Outperform rating on the shares. The analyst sees long-term potential for Cloudflare, Inc. (NYSE:NET) and expects the company to maintain elevated and durable growth while also improving profitability.
At the end of Q1 2022, 44 hedge funds were bullish on Cloudflare, Inc. (NYSE:NET) and held stakes worth $1.24 billion in the company. This is compared to 55 positions in the previous quarter with stakes worth $1.59 billion.
In the second quarter of 2022, ARK Investment Management raised its stakes in Cloudflare, Inc. (NYSE:NET) by 33%, bringing them to $18.18 million. As of June 30, the fund owns over 0.3 million shares of Cloudflare, Inc. (NYSE:NET) and is the most top shareholder in the company.
Baron Funds mentioned Cloudflare, Inc. (NYSE:NET) in its “Baron Fifth Avenue Growth Fund” first-quarter 2022 investor letter. Here is what they said:
“Cloudflare, Inc., another new purchase during the quarter, is a web infrastructure and website security provider. Cloudflare disrupts legacy networking vendors by enabling customers to rent their network solutions in the cloud (and pay for usage) instead of buying firewalls, load balancers and secure web gateway devices. Using a global network in over 100 countries, Cloudflare delivers content and security within 50 milliseconds of 95% of the internet-connected population in the world. Shares contributed 12bps to results on impressive fourth quarter earnings as it continues to successfully layer high-value services such as zero trust, network services, and edge programmability on top of its modern global network. The company is attracting a broader set of investors as Cloudflare now matches durable 50%-plus top-line growth (this was the fifth straight quarter of 50%-plus revenue growth, and 56% current bookings growth suggests strong durability into 2022) with positive operating margins and break-even free cash flow. We believe that Cloudflare will benefit from long-duration of growth disrupting a $100 billion addressable market across application services, network services, and zero-trust services.”
Other large-cap tech stocks that have been beaten down in 2022 and lost significant chunks of their value include Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOG).
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Disclosure: None. 10 Best High Risk High Reward Stocks to Buy Now is originally published on Insider Monkey.
