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Risk-taking is an art! Not every risky stock is worth investing in. It's prevalent among stock market investors to justify a wrong decision as a risky one. However, a well-researched and informed risky decision can generate an outsized return, while being protected from total ruin. In this blog post, we explain a simple set of criteria we use to discover stocks worthy of your attention if you are a risk-taker. The list of Stocks for Risk-Takers can be a starting point for those who understand only some risks are worth taking.
Launching Stock Card's "Stocks For Risk-Takers" collection
We started the process by looking for smaller companies using the market capitalization of less than $10 billion. Doubling a $100 billion company is much harder than doubling a $2 billion company. Therefore, when it comes to risk-taking, small is more beautiful than big.
By just only one filter, the universe of publicly-traded stocks in the U.S. stock exchanges shrinks to a list of slightly a few more companies than 4,000.
Not every small-cap stock is worth your attention!
Finding noteworthy risky stocks is not just about searching for smaller companies. It would help if you also weed out those companies that cannot grow their revenue. Notice that we didn't talk about profitability. When companies are small and profitable, the chances are the stock market algorithms have already found them, and prices are adjusted to reflect the positive earnings. Therefore, stocks with growing revenue in the last 12 months to 3 years can narrow the list to a more manageable list.
If not profitable, then what?
While being profitable is good, being able to generate free cash flow is better. Earnings and profit are metrics heavily influenced by accounting principals. Highly profitable operations can become unprofitable if the management decides to reinvest the money it makes back into the company. However, a reliable, rapidly-growing company are typically cash flow positive before they are profitable.
The last criterion to consider is the company's ability to survive a period of economic hardship (such as the economic slowdown induced by the COVID-19 pandemic in 2020) or possible fluctuations and cyclicality in demand (such as demand cycles for chip technology). A reliable, risky company has enough cash to fund its operating expenses easily without the need to raise additional money or borrow.
The result of the above screening is a list of 189 reliable but risky stocks worthy of the attention of a risk-taker investor. We added them to Stock Card's collections, and you can access them for free by typing "Stocks for Risk Takers" in the search box on our website. Log in and check the list!