3 high-risk, high-reward stocks to add to your watchlist

There is no such thing as a risk-free investment. Regardless of the size of a company or how long it has been in business, you need to accept that stocks can lose value if things go wrong. But why take the risk of investing in stocks when there are safer places to store money? It’s simple: stocks can generate rewarding returns when the going is right.

For the record, not all stocks are high risk and high yield. I believe there are low risk and high return stocks as well as high risk and low return stocks. So don’t condition yourself into thinking that you always have to take on exorbitant risk if you want to make any money. You don’t!

That said, here are three risky investments that could pay patient shareholders a lot of time.

1. Acquisition of USHG

Special Purpose Acquisition Companies (SPACs) have been popular investment vehicles for the past two years. These companies do not have any commercial activity; rather, they raise funds by going on the stock market in order to acquire another business. Acquisition of USHG (NYSE: HUGS.U) went public in March with the intention of buying a business in the restaurant and reception area.

I believe all PSPCs are high risk investments before announcing a business goal. For all we know right now, USHG Acquisition could acquire a real business failure. In addition, it is quite possible that the acquisition of a business will be overpaid. Consider that among the top 50 restaurant chains, according to News from the nation’s restaurants, more than half are already public enterprises and 12% have been recently privatized. This leaves a limited number of intriguing acquisition targets. And with about a half-dozen pre-merger restaurant PSPCs already available, there’s a chance for a bidding war for quality companies.

But USHG Acquisition has two advantages that might be worth it. For starters, Danny Meyer is part of the management team. Known for his bestselling book Set the table, Meyer was part of the team that created Shake Shack, a business that grew from a single location in 2004 to over 400 locations today generating over $ 500 million in annual sales.

Additionally, there may be room for opportunistic growth in the restaurant industry right now. The pandemic has affected many restaurants and some will never recover. It’s not something that makes me necessarily happy. But chains that can afford to expand rapidly now can fill the void created by recent closures.

In summary, we don’t know if USHG Acquisition will buy a big business for a reasonable price. But, armed with cash, Meyer and his team are well positioned to rapidly develop a restaurant business right now.

2. AquaBounty Technologies

Land-based fish farming company AquaBounty Technologies (NASDAQ: AQB) is a unique company on the stock exchange. Its AquAdvantage Salmon are genetically engineered to convert food into meat more efficiently than other animal proteins. And they’re grown in terrestrial reservoirs rather than picked from the ocean. So far, the company has experimented with scaled-down versions of its farms to prove the concept. But he plans to build his first large-scale farm later this year.

The risks for AquaBounty are numerous. First, the farm she plans to build could cost up to $ 175 million and have a payback period of up to eight years. But this already long payback period assumes that GM salmon find receptive consumers. While the company’s own research shows that 70% of people will at least try it, a 2018 study by food and beverage industry consultants The Hartman Group found that nearly half of all consumers avoid genetically modified foods.

The next few years will also be costly for AquaBounty, which adds to the risk. To truly provide a growing population with a more sustainable source of protein, the company will need to build more than one farm on a commercial scale. In fact, he hopes to build five farms before 2028, which could cost $ 175 million each. In other words, he could consider close to $ 900 million just to grow his business.

That said, AquaBounty is a small cap stock with a market cap of less than $ 400 million at the time of writing. If he builds five farms as he plans and finds receptive consumers, he thinks he could generate around $ 350 million in annual revenue. From there, AquaBounty would be established enough to propel expansion into high gear, and even build farms internationally.

It would be a long and risky journey for AquaBounty shareholders. But there is a possibility that the stock will produce high returns over an extended period, given the current size of the company.

3. Nano-X imaging

Of all the stocks I own, none is riskier than a medical device company Nano-X Imaging (NASDAQ: NNOX), or “Nanox” as it is commonly called. The company intends to produce and commercially distribute its main product, the Nanox.ARC, which uses a different (and cheaper) process to create x-ray images for the medical industry. The product that he is currently prototyping and hopes to distribute in the near future uses a differentiated business model that aims to generate revenue primarily through per-use license fees rather than the sale of hardware. The plan will forever disrupt the x-ray industry if it succeeds, and it could translate into a home investment if all goes well.

But there are so many things that could go wrong. Here are some of the biggest risks for Nanox stocks:

• Valuation risk. The company’s market capitalization is close to $ 2 billion, but it currently does not generate any income.
• Regulatory risk. Nanox recently received approval from the Food and Drug Administration for its single-source Nanox.ARC device, but it is only just beginning the process to get approval for its multi-source machine, which is the one it has. intend to market.
• Production risk. The company has never manufactured machinery on a large scale. It is not known how smoothly this process will go.
• Marketing risk. Are doctors going to try out a whole new technology when they are already comfortable with today’s x-rays? Will other players allow Nanox to just waltz around and make their x-ray machines obsolete without a fight?

If Nanox fails at any point in this process, there is a substantial downside risk with this stock. In the worst case, it could go to zero.

But the benefits are huge if all of these things go very well. In a little over three years, management estimates that it will be able to deploy 15,000 machines. And he already has contracts for 5,150, which alone could generate nearly $ 400 million in high-margin revenue.

Not to mention that 15,000 machines would be just the start of a much longer story of growth that could unfold over the next decade and beyond. In addition, its Nanox.ARC will produce thousands of digital medical images. This could quickly turn into a huge and valuable data set, allowing computer analysis to uncover new medical knowledge that previous technologies did not allow.

When extreme risk can be worth it

I advocate building a diversified portfolio over time. One of the overlooked benefits of diversification is that it allows you to take big risks from time to time. After all, if you spread your investments, you won’t incur devastating financial losses when a riskier investment does not materialize. But it does allow you to take advantage of instances where a risky bet turns into one of the few big growth stocks.

In summary, I would not make USHG Acquisition, AquaBounty Technologies or Nano-X Imaging a key part of my portfolio at this time. But diversification allows me to occasionally take small stakes in exciting companies like these.