Know when it's time to take a gamble.
The adage "fortune favors the bold" is certainly true on Wall Street. The biggest investing winners are the ones that aren't afraid to take a risk on companies with huge long-term growth potential. Investors looking to play it safe can simply buy a S&P 500 index fund. But even for those willing to take a gamble on a handful of high-risk stocks, there's a difference between a risky investment and a reckless investment. Here are seven high-risk stocks to buy that could generate big returns, as rated by Bank of America analysts.
Advanced Micro Devices (ticker: AMD)
Since the beginning of 2018, the stock of semiconductor company Advanced Micro Devices rallied from $9 to a high of more than $34, then fell back to $16 and shot up to about $30. Despite the stock's risk and volatility, analyst Vivek Arya says the long-term trend for AMD will be higher given its potential to gain market share in the PC, server, high-end gaming and deep learning markets. Arya says consensus 2020 earnings estimates are 10% too low. Bank of America has a "buy" rating and $35 price target for AMD stock.
Salesforce is one of Bank of America's top stock picks for the long-term trend of digitalization of the global economy. Analyst Kash Rangan says Salesforce has bullish catalysts, including the potential for add-on and upgrade sales and the expansion into fields such as analytics and artificial intelligence. Rangan says the key metric for investors to watch in coming quarters is current remaining performance obligation, or cRPO, which was up 24% in the most recent quarter. Bank of America has a "buy" rating and $200 price target for CRM stock.
Slowing user growth, data regulation, negative headlines about platform abuse and potential antitrust actions are just a handful of the risks for Facebook stock. However, analyst Justin Post says there are simply too many Facebook growth opportunities for investors to ignore. Facebook recently launched in-app purchasing on its Instagram platform, one of the company's first steps in better monetizing its Facebook and Instagram newsfeeds over time. Post says Instagram's visual nature makes it a great fit for shopping services. Bank of America has a "buy" rating and $187 price target for FB stock.
MGM Resorts International (MGM)
Despite the uncertainty for U.S. casino operators surrounding nationwide sports betting legalization, analyst Shaun Kelley says MGM recently got good news in the U.S. and its Macau market. In March, the Macau government announced the extension of MGM's operating license through 2022, removing a potential overhang for the stock as the U.S. trade war with China drags on. In addition, a recent room rate survey suggests MGM is off to a strong start to 2019 in Las Vegas. Bank of America has a "buy" rating and $33 price target for MGM stock.
Consistently high Netflix growth numbers coupled with its exorbitantly high market valuation makes Netflix one of the highest-risk stocks in the market. Despite the risks, analyst Nat Schindler says the sky is the limit for Netflix. Netflix is always only one quarterly subscriber miss away from a huge sell-off and new competitors such as Walt Disney Co. (DIS) threaten Netflix's leadership in streaming video. However, Schindler says Netflix has at least five more years of international expansion and pricing leverage to drive its valuation higher. Bank of America has a "buy" rating and $450 price target for NFLX stock.
Take-Two Interactive Software (TTWO)
Take-Two is the video game company behind popular titles such as "Grand Theft Auto" and "Red Dead Redemption." In addition to its world-class development studios and valuable game franchises, Post says a rumored buyout by Sony Corp. (SNE) could generate major upside for investors in the near-term. The initial sales momentum from "Red Dead Redemption II" has started to slow, but the stock is trading at a discounted valuation and it is still in the early stages of online monetization of "Red Dead" and "Borderlands." Bank of America has a "buy" rating and $130 price target for TTWO stock.
Since its 2013 initial public offering, Twitter has been one of the most divisive, volatile, risky, inconsistent and potentially disruptive stocks on Wall Street. User growth has been slower and less consistent than investors had hoped. User monetization is well below Facebook's levels. Post says advertiser penetration and user engagement time are still relatively low as well. However, demand for short-form mobile video is a major potential catalyst for the stock, and there's no question Twitter's massive user base and data collection have tremendous potential. Bank of America has a "buy" rating and $39 price target for TWTR stock.
High-risk, high-reward stocks to buy.
-- Advanced Micro Devices (AMD)
-- Salesforce.com (CRM)
-- Facebook (FB)
-- MGM Resorts International (MGM)
-- Netflix (NFLX)
-- Take-Two Interactive Software (TTWO)
-- Twitter (TWTR)