A lot of the financial literature out there teaches individual investors to compile the safest portfolios possible. Concepts like rebalancing and diversification are batted around routinely with the overarching goal of protecting your money. But investing isn't just a way to grow your money at the inflation rate -- it can also make you rich, or at least secure your retirement faster than you thought. For investors who aren't content to grow alongside theS&P 500, high-risk investments present an alluring opportunity to make outsized gains. They are, of course, risky and might not lead to gains. But often, all it takes is one multibagger to compensate for a bunch of losers, especially in today's volatile market.
With that mind, we asked three Motley Fool contributors for recommendations on high-risk stocks.
Jeremy Bowman(Netflix): Of all the risky stocks out there, perhaps no other household name has done better thanNetflix Inc over the past few years. Following the Qwikster debacle, the stock crashed during 2011, but has since returned over 1,000% from its bottom in 2012. While new investors are unlikely to see those kinds of returns from a company now worth $45 billion, the possibility of Netflix doubling or tripling over the next few years is considerable for several reasons.
The opportunity awaiting the streaming leader is huge. Television and movie entertainment is a market worth trillions of dollars, and the Internet TV revolution being pioneered by Netflix is already unsettling megacap media titans like Disney,Time Warner, andComcast.
The company is in the midst of a breakneck international expansion, entering Japan earlier this month and planning to enter Italy, Spain, and Portugal later this year. By the end of 2016, it expects to be available in over 200 countries around the world, and international growth has been strong, with subscribers up nearly 70% year-over-year.It's unclear how the company might enter the Chinese market, but successfully doing so could send the stock flying.
Its originals department continues to grow, and while its performance at the Emmys may have been tepid, the company's awards haul should only expand in the coming years. Finally, domestic subscriber growth is accelerating, and Netflix is approaching its domestic contribution margin goal of 40% faster than expected.
Netflix will remain a volatile, risky stock as this market is changing quickly and competition for so-called cord cutters is heating up, but this company has been revolutionizing home entertainment for nearly 20 years since it shipped its first DVD, and it's a smart bet that it will continue to do so.
Tim Brugger(Infinera): When optical networking provider Infinera shared its Q2 2015 financial results on July 22, investors were duly impressed -- and for good reason. Infinera stock popped about 10% in the days that followed. That's the good news. The better news for high-risk investors is that since reporting its strong quarter, Infinera has been caught up in the overall market's malaise and has since dropped to about $20 a share as of writing.
Despite a significant increase in research and development (R&D) spending last quarter, Infinera was still able to more than triple Q2 2014's earnings per share (EPS)to$0.13 compared to last year's $0.04. Infinera moved the EPS needle so dramatically thanks to a 25% jump in revenue, hitting $207.3 million vs. $165.4 million last year. Not surprisingly, income from operations also skyrocketed, more than doubling to $16.53 million.
Infinera's strength in the burgeoning data center market place -- thanks in large part to companies shifting to the cloud -- positions it well to continue its stellar growth. Naysayers may point out that Infinera is trading at about 64 times earnings, making it much too expensive to consider. But before you scratch it off your list of high-risk investment opportunities, it's worth noting that Infinera is trading atjust21 times forward earnings, which helps explain why the average price target from analysts is $27.13.
Infinera flies under many investors' radar because of its relatively small market capitalization of $2.65 billion, but don't let that put you off. Infinera is gaining steam, as evidenced by its stand-out Q2, and its emphasis on cloud-related networking solutions should keep the ball rolling.
Tamara Walsh(Tesla Motors): Electric-car maker Tesla has been one of the riskiest stocks on the block since its inception as a publicly traded company in2010. However, as Foolish investors know, the higher the risk, the higher the possible payoff. Such has been the case with shares of Tesla Motors. Once the most-shorted stock on the Nasdaq, Tesla has gained more than 1,000% since its initial publicoffering.
The company has achieved many milestones in the past five years. Tesla's Model S zero-emissions sedan, for example, was awardedMotor TrendCar of the Year (two years in a row), while also earning the highest safety rating ever given byConsumer Reports(also back-to-back years). Wall Street rewarded Tesla by pushing its stock up from around $27 a share in 2011 to where it trades today at around $250 apop.
With a forward price-to-earnings ratio north of106, the stock looks expensive today. However, long-term investors with at least a five-year time horizon could be handsomely rewarded for their patience. Tesla's Model X Crossover SUV is set to begin deliveries later this year. If this vehicle has even a fraction of the appeal that Tesla's Model S has achieved, it would certainly fuel earnings growth in the quarters ahead.
Another catalyst for the stock is the $5 billion Gigafactory that Tesla Motors and partners are building in Nevada today. The massive battery factory will make Tesla the largest producer of lithium-ion in the world. Moreover, it will enable the upstart automaker to produce enough lithium battery cells by 2020 to power 500,000 electric cars -- a much-needed milestone if Tesla is to become a mass market automanufacturer. Therefore, while there is plenty of uncertainty in this high-risk stock, there is also massive potential for the company in the years ahead.
The article 3 Top Stocks for High-Risk Investors: Tesla, Infinera, and Netflix originally appeared on Fool.com.
Jeremy Bowman owns shares of Netflix. Tamara Rutter owns shares of Netflix, Tesla Motors, and Walt Disney. Tim Brugger owns shares of Walt Disney. The Motley Fool owns and recommends INFN, NFLX, TSLA, and DIS. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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