Every investor approaches their task in a very personal way, hopefully, following the advice and guidance of experts as they go. It is not supposed to be purely an analytical and boring experience. You are supposed to have fun with it, too. In this context, it has long been the counsel of professionals that a portion of one’s portfolio – somewhere in the neighbourhood of 5% to 10%, should be devoted to – having fun.
Years ago, this allocation was referred to as a ‘Special Situations’ pool, but the idea was to choose a group of minor entities that might have the rare chance of dramatic growth with a big payoff down the road. These stocks would not appear on any published lists of the best stocks to buy over the next year, and for this reason, they soon earned the name of ‘under-the-radar stocks’. If your prospecting efforts were prudently spent, then the expectation was that anywhere from one to three items out of 10 might make it big time with price appreciation to match.
In modern times, this approach has given rise to what is called thematic investing, where you attempt to predict what companies might benefit from predictable long-term and global mega-trends. These trends might include the Internet of Things (IoT) or artificial intelligence and robotics, but the best under-the-radar stocks need not always fall within these thematic categories.
Since these entities are typically small enterprises, it does not take a lot of recognition by the global investing community to make prices skyrocket. You also want to choose a security for a firm that is on the cusp of a great discovery or has an innovation driven by bringing convenience to our lives, but the goal is to find these gems before everyone else and before the big press releases alert the world to its achievements.
There is also an issue of liquidity. Small entities may have their price behaviour jump erratically before being found, which can make it difficult to cash in on your winnings. You want other investors to finally find this jewel before you part with it. Unless the venture appears to be a fly-by-night shot-in-the-pan, which will fizzle out in the near term, you will want to hold onto these selections for a few years.
A perfect example is Bitcoin. Wise observers counselled that it was high risk and anything could happen, but early on, the advice was to buy a good stake, and then not look at it for at least five years. If you had bought just $1,000 five years ago, it would be worth a cool $60,000 today. Do the same math from eight years back, and you would be sitting on $500,000.
Bitcoin and stocks like Apple, Google, and Amazon do not come around everyday, nor do investors easily find these powerhouses in their nascent stage. Invest a tidy sum and believe in the long-term prospects, even against all odds. You choose your best shots, invest an appropriate amount, and wait.
Is it possible to find one of these offerings as an individual investor when there are legions of experts on Wall Street covering every stock known to man? Indeed, there are also many experts in the investment community who enjoy searching for these diamonds in the rough.
On a personal level, your search engine will uncover a number of these specialised lists of the best under-the-radar stocks, or you may see a newsletter or two touting the latest and greatest find. If the distribution reaches a wide enough audience, there may be a price pump, a swing trader’s dream, but caution is advised.
Most importantly, beware of ‘pump-and-dump’ fraudsters trying to unload a bad portfolio. Not every recommendation is worth your consideration. You still must do a bit of due diligence before rushing in to buy. You want substance, not an empty bag of air surrounded by a multitude of press releases that make the company sound like it is unstoppable. If the hype is worthy, then investors would have already taken note and produced a gradual up-tick, not a spike.
Conservative investors may shy away from this process, but it is part of what makes investing a fun pastime for many people. You never know what the future might bring, but if any one of your choices makes it big enough to suddenly rise to the Russell 2,000 or the Wilshire 5,000, then price appreciation may be guaranteed. A liquidity event may be assured at a good price, and you will remember your prowess as a wise stock picker forever. Here then, is our list of hopefuls.
There is no shortage of small and undiscovered ‘wannabe rock stars’ in the investment arena. American exchanges are filled with public stock companies that aspire to be the latest darling of Wall Street. Our list of four speculative ventures follows:
1. Chewy Inc. (NYSE:CHWY): Who would have thought that COVID-19 would have created two global trends – to shop via e-commerce and to own a pet at home? Yes, both trends are thriving, and Chewy falls right into the sweet spot for the avid at home online crew.
This company retails online pet products and has assimilated an online customer base of over 20 million clients. The firm also has an interesting subscription plan for its loyal customer base that gives them access via phone or video chat directly to a veterinarian. This company is no start-up. It has over $7bn in revenue with expanding gross margins. Investors drove the stock price up in early 2021, but it is coming back to earth due to supply chain issues, which are viewed as temporary. Is now the time to take a position?
2. Chegg Inc. (NYSE:CHGG): Chegg is another entity whose price behaviour has mimicked that of Chewy, rising dramatically from 2020 to early 2021, only to fall out of the sky some 75% to a more reasonable valuation. Analysts view it now as a buying opportunity.
The advent of online college courses at home plays into the forte of this firm, which is to provide online resources for students, tailored to the curricula they are taking. Its subscription service permits 20 questions per month, in which experts supply detailed support based on the subject matter. Over time, the reliance on experts will diminish, as the company’s database becomes more robust.
Of note, this firm’s EBITDA for the past five years has grown at a compounded annual rate of 65% a year. Its Market Cap is $4bn. This stock could have more room to run.
3. AST SpaceMobile Inc. (NASDAQ:ASTS): Technology stock bets can always be high-risk/high-reward scenarios. You never know if the technology will really work up to expectations and whether the target market will truly rush to buy the service. ASTS is definitely one of these type bets.
ASTS’s goal is to connect the 51% of the world’s population who do not have connectivity. Roughly 1 billion mobile phone users fall into this category, and ASTS hopes to assist with a modern satellite network that relies upon its protocols. It claims to have 1,000 patents protecting its intellectual property, but several firms in the past have crashed and burned trying to build a satellite network.
ASTS recently gained access to the NASDAQ through a special purpose acquisition company (SPAC), and share prices rose above $20. It quickly dropped as swing traders made the most of a good situation. It languishes now around $8, but Deutsche Bank has given it a ‘BUY’ and pegged $35+ as most probable. If you like to gamble, this bet might be for you.
4. SC Health Corp (NYSE:SCPE): Do you like to speculate on deals that have yet to close? There is a deal brewing between SC Health and Rockley, a leading developer of Photonic Integrated Circuit (PIC) optical sensors for healthcare wearables. The transaction would be like a reverse SPAC. SC would put in $323m in cash and acquire Rockley, which would then hit the market running as RKLY.
By the looks of recent SCPE stock behaviour, speculators are already sniffing around this deal, having driven the price from $10 to nearly $16 in short order.
Investing can be a tough process at times, but one enjoyable pursuit is to search and take a chance on those shares nicknamed ‘under-the-radar stocks’. The list presented here is just one take, and it should not be considered investment advice. Always do your own due diligence, only devote a small portion of your portfolio to this activity, and, of course, enjoy the journey.
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