Buy these stocks and make big bucks when they bounce

 

Investing is a game of numbers. While the primary goal is to make money, the real goal is to invest money in a basket of stocks that is able to outpace the return of the overall market.

Finding stocks that can consistently produce slow and steady returns is a great long-term investing strategy, and poses low risk for investors, but sometimes that is not enough. For investors that want to boost their return, and seek out stocks poised to deliver oversized gains, you have to be willing to assume a heightened level of risk.

Risk is the name of the game for investors who want to find stocks for oversized gains, so it should not come as a surprise that each stock we will look at in this article comes with a level of risk.

Risk and reward go hand in hand, but we still have to be careful when picking stocks. It is OK to assume a little additional risk, but we still have to do our homework to make sure we are not simply throwing our money out the window.

I want to take a look at the total universe of stocks, and try to pinpoint five stocks that have the real potential for oversized gains, all of which are slightly risky, but none of which are a pure gamble.

Remember that these stocks each have their own risk, so do your own homework and decide for yourself if the risk is worth the potential big payday that these stocks may deliver.

Tesla

Electric car maker Tesla (TSLA) has already enjoyed a nice bounce from its 52-week low set in February, but shares are still well below where they were trading as recently as December. Growth estimates are still astronomical for the company, with analysts forecasting earnings growth of 160% this year, and 130% next year. Tesla is not a company trying to deliver big profits in the short term, instead the company has a big long-term plan. Tesla will not be content with simply being an electric car company, instead it has a vision of changing the way people view electricity. The company’s Gigafactory, currently being built in Nevada is a potential game changer for the entire electric-car industry. By 2020, the factory is expected to output more rechargeable batteries than were made globally in 2013. Gigafactory construction is running ahead of schedule, and now expected to begin operations this year, which should drive the stock higher. Tesla doesn’t plan to stop there, with plans for additional plants in the future. The company is also expected to unveil multiple new vehicles this year, which should serve as additional catalysts for the stock.

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Chart courtesy of www.stockcharts.com

Pandora Media

A big revenue miss last October spurred a sell off in Pandora Media (P) which saw the stock lose around 63% of its value between October and February. The good news for investors is that the stock has already started to bounce, and if it can maintain its current momentum there is a lot of upside potential. The company faces increased competition from Amazon (AMZN) and Apple (AAPL), but despite the increased competition Pandora has managed revenue growth. Pandora had $268 million in revenue during the fourth-quarter 2014, averaging $3.29 per active user. By comparison, revenue rose to $311.56 million in the fourth-quarter 2015, which worked out to $3.99 per active user. Its active user count has been on the decline, but with the company boosting revenue per active user, I believe the recent selloff is greatly overdone. The radio advertising market is huge, and Pandora is now available in over 160 car models. If the stock can rebound to where it was just as recently as December, it would mark a 50% gain.

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Chart courtesy of www.stockcharts.com

Whole Foods Market

Natural and organic grocery chain Whole Foods Market (WFM) sold off sharply in 2015, but it seems as if Wall Street has overreacted, and the stock looks attractive at this point in time. Earnings have been on the decline, but there is a lot of long-term potential for the stock. Whole Foods is the largest natural and organic chain the U.S., but there is still a lot of room for future growth. The company plans to more than triple its number of stores in the U.S. Whole Foods enjoys a solid brand name, and while the company does face increased competition, its brand name is going to keep it one step ahead of the pack. Earnings have been on the decline, but the bad news has already been priced into the stock, and as long as the company is able to keep pace with analyst estimates moving forward, I see shares building on their current momentum and erasing more of the recent losses.

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Chart courtesy of www.stockcharts.com

Twitter

Social media giant Twitter (TWTR) has over 300 million users, and among its users, the service is very popular. The problem for the company at this point has been its trouble in growing its user base. The service is different from other social media platforms because it allows any user the opportunity to interact with celebrities and other high-profile figures. One big step would be for the company to allow users to tweet more than the current maximum 140 characters. This may come to fruition, as a recent article on popular technology news site re/code suggests Twitter may increase the limit to as high as 10,000 characters. The increased character limit could make a huge difference, and allow the service to quickly grow its user base. If users start to rise, the stock will move strongly higher. TWTR is now trading around $18.75, but as recently as October shares were hovering above $30. Earnings are expected to rise 37.5% this year, and 41.8% next year. If Twitter continues to struggle adding new users, the stock will remain under pressure, but if users start to grow under newly appointed CEO Jack Dorsey, the company’s co-founder and former CEO, the stock has a lot of room to run.

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Chart courtesy of www.stockcharts.com

Skechers U.S.A.

Footwear and apparel maker Skechers U.S.A. (SKX) took a beating in October following a weaker than expected third-quarter report, but the stock is once again trending higher, although shares remain well below where they traded last summer. With last year’s sell off, the stock’s P/E is currently attractive at 22, and analysts forecast strong earnings growth. Analysts peg the company to grow earnings 38.0% this year, and by 19.3% next year. Revenue is growing nicely for the company, with sales up 26% during the fourth quarter, and expected to rise 18.5% during the current quarter. Given the strong earnings and revenue growth expected to come, I expect the stock will continue to build on its recent gains.

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Chart courtesy of www.stockcharts.com

Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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