2 “Risk-On” Stocks That Could Easily Double In 2013
The first several weeks of January have been amazingly bullish for the stock market, as you will see in the chart. If this trend continues, then 2013 could truly turn out to be a year to be remembered as super-bullish.
The Federal Reserve stimulus combined with the real estate recovery and ultra-low interest rates are fueling the market higher. As the majority of the “Fiscal Cliff” fears turn into a distant memory, the market has little choice but to push higher in this economic environment. Obviously, my bullishness is pending no extreme “black swan” type of event.
All the U.S. stock averages are up more than 4% so far this year, with small caps leading the way as the Russell 2000 is up more than 5%.
As you can see from the chart below, six out of nine sectors in the broad-based S&P 500 are pushing higher this year. Energy and health care are leading the pack, with technology and utilities lagging.
Utilities are often thought of as a proxy for the bond market due to their steady performance. Therefore, when utilities are lagging the overall market, then it is a clear sign of a major “risk-on” attitude in the U.S. market.#-ad_banner-#
This means right now is the perfect environment for taking a big risk in the market.
Don’t get me wrong, I’m not advocating risking your entire portfolio or retirement investments. But taking a small percentage from 3% to 5% (or even up to 10% as my colleague Andy Obermueller does) of your available cash and taking a big risk on a stock could pay off in spades.
This is particularly true in this extremely risk-on bullish environment.
Taking a risk-on attitude is not only fun, but it can turn you into a millionaire. However, it’s important to be very aware the money invested in this fashion could be permanently lost.
Using this risk-on mindset, I searched for stocks that could easily skyrocket or fall to zero this year. Here are two of my favorite double-or-nothing stocks.
1. Groupon (Nasdaq: GRPN)
This online marketing stock will likely go down in history as one of the biggest initial public offering disappointments of all time.
The stock went public in 2011 at an initial price of $20 a share. But Groupon has been plagued with scores of problems since the IPO. These issues started with the initial greed of the underwriters who decided at the last minute to ramp up the offering price from the initial $16 to $18 range, to $20 a share and increase the number of shares available by 5 million to a total of 35 million.
Accounting irregularities, apparent management ineptitude from CEO Andrew Mason and extreme competition from other copycat companies and behemoths such as Facebook (Nasdaq: FB) and Amazon.com (Nasdaq: AMZN) all round out the commonly-cited issues surrounding the company’s demise.
As a result, the stock plunged to nearly $2 in November 2012, but has subsequently bounced into the $5 range.
Why I like this stock as a risk-on investment
The hedge fund Tiger Global Management bought a 10% stake in the company when the stock was near its lows. The large fund run by Chase Coleman and Feroz Dewan has already doubled its investment in the company and is likely expecting to add much more of its money into it.
In addition, Groupon’s troubled CEO has developed the reputation as a complete failure in the investment community. If and when he’s replaced, then shares could easily skyrocket. Remember, a double from today is still only $10. The earnings report arriving on Feb. 27 after the market closes could lift shares, granted the results are better than expected.
However, it’s important to note that during the past five quarters, shares have plunged the day after earnings all but one time. The company just acquired social-media firm Glassmaps and is ramping up its analytical engines to help merchants market its products and services.
That’s why I wouldn’t be surprised to see this stock at $10 a share sometime between now and 2014.
2. Alpha Natural Resources (NYSE: ANR)
This coal stock plunged from a high of $70 a share in early 2011 to a low of less than $5 last September. The price has since been on a steady, but rocky climb higher to more than $10, prior to pulling back to the 200-day simple moving average at about $9.
The company has a market cap of just more than $2 billion and ranks as North America’s third-largest coal producer by revenue and production. However, the change from thermal coal to natural gas, due to natural gas’ ultra-low prices, has severely hurt this once-leading energy company.
In addition, the threat of the Environmental Protection Agency shutting down more than 10% of the coal capacity in the United States has also knocked Alpha Natural Resources lower.
Why I like this stock as a risk-on investment
Although demand in the United States is falling quickly because of environmental pressures and competing fuel sources that are cleaner, worldwide demand is also increasing. In 2011 alone, coal was the fastest-growing energy source after renewable energy, reaching a record level of 7,678 million tons that year, a 6.6% increase over 2010, according to the World Coal Association.
This growth is due to the massive economic expansion in India and China. Growth overseas is so robust, the United States shipped more coal overseas in 2012 than any year since 1981, a total of 124 million tons, according to the U.S. Energy Information Administration. The coal industry expects global coal demand to increase at an average of just less than 3% per year for the next five years.
In addition, should natural gas prices start to climb, the emphasis will switch back to coal as a readily-available fuel source. These facts sparked the nearly 100% rally since September 2012.
As this risky stock right bounces from its 200-day simple moving average, I expect it to reach $30 within the next 18 months, if natural gas keeps going up and global demand increases.
Risks to Consider: Both of these companies have the potential for substantial gains in 2013. However, they are extremely high risk and their success is dependent on factors that have unknown odds of occurring. Only use money you can afford to lose when investing in these types of opportunities.
Action to Take –> Groupon and Alpha Natural Resources are my two favorite “risk-on” stocks because of their huge upside potential. Between the two, my favorite is Alpha Natural Resources because of its bullish technical pattern on the daily chart and growing global demand for coal.