Five stocks gamblers should love

 

I often hear people refer to investing as nothing more than legalized gambling, and while I can somewhat understand where they are coming from; investing is obviously not the same as gambling. While it is true that you can easily lose money that you invest, there is much more than luck involved, and with the proper research and homework, you can greatly tilt the odds in your favor.

Having said that, there is definitely some luck involved in investing. No one can guarantee the outcome of an investment, and no one has a crystal ball to see what the future holds for the overall market, much less individual stocks.

Where investing and gambling do compare is that the higher the risk you are willing to assume, the greater the potential payday when you are correct. If you are the type of investors that believes in slow and steady returns, then you do not need to “high risk” stocks. However, if you are in search of big and quick returns, then you have to be wiling to take on additional risk in order to do so.

This week we want to take a look at some riskier stocks, that have the potential to bring in big profits, but could also quickly turn against you if overall conditions are not favorable.

In investing, risk and volatility run hand in hand, so we are going to start our search by seeking out stocks that are more volatile than the overall market. To do this, we want to find stocks that have beta values in excess of 1.

When a stock has a beta of 1, it has the same volatility as the overall market. Should the beta rise to 1.2, the stock has 20% more volatility than the overall market, and so forth.

Each of the following stocks has high volatility, but in my opinion the potential reward makes the increased risk worth the gamble.

MGM Resorts Int’l

It is fitting to start our list with an actual gaming stock, and in the gaming sector our top pick is MGM Resorts (MGM). The gaming sector has been hurt in recent years because of eroding conditions in the once red-hot Macau region. Macau came out of nowhere and quickly became the center of the gaming universe, and all the big casino companies invested big bucks  in the region. Political changes, and overall slowing growth in China has hurt the region, and now growth is happening in other regions such as the Philippines. MGM has held up better than most gaming stocks, and is currently in a nice upward trend. The stock has a beta of 3.1, so there is plenty of volatility in the stock to attract high risk investors. The stock is coming off a better than expected quarterly report in early-May, and analysts forecast earnings growth of 21.8% this year, and 53.7% next year. The stock trades at $22.37, and analysts have an average price target of $27.76, so there is plenty of upside potential if you are willing to role the dice on this gaming stock.

MGM160510

Chart courtesy of www.stockcharts.com

General Motors

Detroit automaker General Motors (GM) has a beta of 1.6, making it 60% more volatile than the overall market. The company has enjoyed a string of solid quarterly reports, but shares have been a bit lackluster. General Motors has been under pressure due to slowing growth in China, which is a crucial market for all automakers. The U.S. auto market remains rock solid, and analysts forecast sales to easily eclipse 17 million vehicles in 2016. GM is forecast to grow earnings by 13.3% this year, and with a P/E of just 5.28 there is plenty of upside potential in the stock if the company is able to hit its growth forecasts. GM is now trading at $31.17, which is well below the average price target of $38.31 that analysts currently have set for the stock.

GM160510

Chart courtesy of www.stockcharts.com

Sonic Corp.

Restaurant chain Sonic Corp. (SONC) has a beta of 1.75. This makes the stock 75% more volatile than the overall market, but that added volatility could result in big gains if shares live up to analysts estimates. The stock is now trading at $33.54, but analysts have an average price target of $37.62 on the stock. As for the company’s earnings trajectory, analysts forecast amazing growth of 23.6% this year, followed by an additional 14.0% next year. If Sonic is indeed able to hit those aggressive earnings forecasts, the stock should be able to easily surpass the average price target that analysts have on the stock at this time. The company’s last quarterly report in late March easily topped estimates for both the top and bottom lines, marking the third straight quarter of higher than expected earnings.

SONC160510

Chart courtesy of www.stockcharts.com

SkyWest Inc.

Regional airliner SkyWest Inc. (SKYW) has surged over the last couple months, fueled by a string of earnings beats, and impressive earnings growth. Looking ahead, analysts forecast earnings growth of 28.8% this year, and by 9.0% next year. The growth forecasts are impressive, and create a valid case for the stock to move higher; especially considering SKYW currently enjoys a low P/E of just 10.4. The stock is currently trading at $23.65, well below the $27.80 average price target, which is another reason to be bullish on the stock moving forward. However, SKYW is volatile. The stock has a beta of 1.85, so there is an increased risk in the stock, but that risk appears to be more than acceptable considering the stock’s valuation, growth estimates, and average price target. Like all airlines, fuel costs are a major cost point for SkyWest, and if oil starts to rise we could see some weakness hit the stock, but oil is so low right now that it would take a really big rise before we see Wall Street turn against the airliners.

SKYW160510

Chart courtesy of www.stockcharts.com

Whirlpool Corp.

Appliance maker Whirlpool Corp. (WHR) has a high beta of 1.78. The main risk for the stock at this point was the company’s recent earnings report, which was weaker than expected on both the top and bottom lines. While the earnings miss did result is a sell off, the stock has already formed a new support level, and the hit was not that big. Last year was not a great year for the stock, but WHR has easily outperformed the market so far this year, and I expect that strength in the overall housing market should continue to drive shares higher now that shares have stabilized from its recent earnings miss. WHR is definitely volatile, with a beta of 1.8, but its P/E of just 17.9 should limit any additional downside risk for shareholders. Analysts forecast earnings growth of 19.2% this year, and 16.0% next year, which definitely makes the risk worth the reward in the stock. WHR is now trading at $177.12, but analysts have an average price target of $204.80 on the stock, so there is a lot of upside potential for investors willing to gamble on the stock following the recent earnings miss.

WHR160510

Chart courtesy of www.stockcharts.com

Symbols: GM MGM SKYW SONC WHR
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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