It is not always harmful to have a volatile market since it may occasionally provide profitable entry opportunities for investors. Investors who are sure that markets will perform well in the long term have the opportunity to purchase more shares of their favorite firms at discounted rates due to the downward market volatility.
A straightforward illustration may be that an investor can purchase a stock for $50 that was previously valued at $100. This kind of stock acquisition decreases your average cost-per-share, which aids in improving the performance of your portfolio when markets ultimately recover.
When a stock increases fast, the procedure remains the same. Investors can benefit from this by liquidating their holdings and investing the money in other sectors with better investment potential. Investors have the opportunity to make significant, long-term profits when they invest during periods of market volatility and good values.
This post discusses the top 10 high volatility stocks you should consider adding to your profolio immediately.
The pace at which the price of a stock rises or falls over a specific period is known as volatility. Increased risk is frequently associated with higher stock price volatility, which also aids investors in forecasting potential future swings.
How Volatility is Determined
Volatility measures the range in which a stock's price may rise or fall and is calculated as the standard deviation of a stock's annualized returns over a specific time.
A stock is considered to have high volatility if its price experiences large swings between recent highs and lows in a brief period. Low volatility is defined as slower up- or down-moving or generally constant price movements for stocks.
While implied volatility examines anticipated future volatility using the market price of a market-traded derivative like an option, historical volatility is determined using a series of previous market prices.
What Causes Volatility in Stock Prices?
Among the factors that may increase volatility are:
Political and economic factors
When governments decide on trade agreements, laws, and policies, they play a significant role in regulating sectors and have the power to influence an economy. Investor emotions may be triggered by anything, including speeches and elections, which affects stock prices.
Economic data is necessary because investors often respond favorably when the economy performs well. Market performance can be affected by monthly job reports, inflation statistics, consumer spending data, and quarterly GDP projections. In contrast, markets could become more erratic if they fall short of market expectations.
Sector and industry factors
Volatility can be brought on by exceptional occurrences in a given sector or business. For instance, a significant weather occurrence in a critical region for oil production might increase oil prices. Consequently, firms involved in oil distribution may see an increase in the stock price as they stand to gain, while companies with high oil expenses may see a decline in stock price.
Similar to the previous example, more government regulation in a particular industry may cause stock values to decline owing to higher compliance and labor expenses that may influence future profit growth.
Enterprise performance
Volatility might affect a single firm rather than the entire market.
Positive news can boost investors' confidence in the company, such as a solid earnings report or a new product that is delighting customers. If many people try to purchase it, the greater demand may assist in driving up the price of the stock.
On the other hand, a stock price might be negatively impacted by a product recall, data breach, or inappropriate CEO behavior when investors sell off their holdings. This sound or bad performance may also affect the larger market, depending on the firm's size.
1. Cassava Sciences, Inc. (NASDAQ: SAVA)
On our list of the 15 most volatile companies to purchase right now, Cassava Sciences, Inc. (NASDAQ: SAVA) is ranked fifteenth. The business is a biotechnology company that specializes in creating medications to treat neurodegenerative illnesses. It was established in 1998 and had a market value of more than $2.7 billion. The company recently made promising findings from research on a medication it is creating to treat Alzheimer's available.
On July 20, stock analyst HC Wainwright kept its Buy recommendation on Cassava Sciences, Inc. shares and increased its price objective from $97 to $124, the potential for new pharmaceuticals under development to catalyze the company's growth in the coming months.
Marshall Wace LLP, a London-based investment company, is one of Cassava Sciences, Inc.'s most significant shareholders among the hedge funds Insider Monkey is tracking, with 282,793 shares worth more than $12.7 million.
Cassava Sciences, Inc. is one of the most volatile companies to purchase, along with Alibaba Group Holding Limited, Micron Technology, and Square, Inc.
2. Falcon Minerals Corp. (NASDAQ: FLMN)
With a 52-week trading range of 4.24 to 30.90 and a current stock price of 28.11, FLMN is a gas distributor in the utility industry (at the time of writing this). The company was established in 2016 and had a market valuation of 672.15M USD. Falcon Minerals Corporation, which once traded under the ticker FLMN, currently trades under the symbol STR.
The stock has increased by 32 percent over the last three months, but it hasn't all been uphill. Overall, we have observed that the company's financials are erratic, hindering the firm's expansion. A high payout ratio and declining profitability are two other elements that may be responsible for this growth stall. There is disagreement among experts about STR stock. While some experts are hopeful, others are pessimistic about the company's ability to raise its profitability.
Several variables contribute to the stock's volatility. One such merger was the complimentary one with Desert Peak Minerals, which was announced at the start of 2022. While mergers are often viewed favorably, this may have alarmed investors since it was unconventional. The merger makes sense overall, but there are some oddities to observe, such as the fact that the buyers of this acquisition ended up holding more minor of the expanded company and that Desert Peak's management team took over to oversee the combined company.
3. Riot Blockchain, Inc. (NASDAQ: RIOT)
On our list of the 15 most volatile stocks to purchase right now, Riot Blockchain, Inc. is number 14. The company is situated in Colorado and specializes in bitcoin mining activities. It is one of North America's biggest currency mining enterprises, with a fleet of over 7,000 miners. Analysts expect the company's share price to rise higher amid China's crackdown on businesses tied to cryptocurrencies since the company might benefit and become the industry leader in coin mining while Chinese corporations struggle.
Investment consulting BTIG began covering Riot Blockchain, Inc. stock on July 29 with a Buy rating and a $45.00 price target, citing the company as a market leader in the currency mining industry with almost 2.5% of the world's mining capacity under its control.
With 2.2 million shares valued at more than $120 million, Chicago-based investment company Citadel Investment Group is the largest stakeholder in Riot Blockchain, Inc., among the hedge funds Insider Monkey is monitoring.
4. Praxis Precision Medicines (NASDAQ: PRAX)
PRAX is a player in the health technology market that focuses on creating treatments for those with crippling brain illnesses. The business was established in 2015 and just went public in 2020. With a price of $1.84 per share right now, the 52-week range is between $1.82-23.56.
For newer businesses like this one, as well as those that go public for the first time, stock price volatility is expected in the following months—especially considering that fledgling companies have not yet established a track record of keeping their word.
In a trial to determine the effectiveness and safety of their monotherapy medication, PRAX-114, for major depressive disorders, the company's PRAX stock witnessed a 63% decline (June 6, 2022). These outcomes indicate that PRAX will refocus its efforts on using PRAX-114 to treat movement disorders and epilepsy.
Since a significant portion of the investor backing for these clinical-stage enterprises depends on the outcomes of their research, which are very unpredictable, significant price fluctuations in the stock are to be anticipated.
5. Nvidia (NVDA)
Nvidia, which has a beta of 2.4, has experienced far more volatility over the past 52 weeks than the general market. The semiconductor stock represents investors abandoning expensive growth darlings from the previous year in favor of value names in 2022. NVDA significantly outperformed the S&P 500 last year, but for the majority of 2022, the stock fell behind the index. As of March 14, NVDA has lost roughly 28 percent of its annual value. Since then, it has rallied to cut the distance between itself and the S&P 500, and the margin is currently only a few basis points. The stock has a strong consensus buy rating from analysts.
6. XPeng Inc. (NYSE: XPEV)
A firm that sells smart electric cars is called XPeng Inc. It is the twelfth-ranked stock on our list of the 15 most volatile companies to purchase right now and has its headquarters in China. The company reported monthly deliveries of over 8,000 intelligent electric vehicles for July on August 1. This was the highest number of vehicles the company had ever delivered in a month and represented an increase of 228 percent year over year and 22 percent compared to the deliveries in the previous month.
Investment bank Citi maintained a Buy rating and increased its price target for XPeng Inc. shares to $56.3 on July 2 from $50.3, citing the company's increased shipments in June and a successful IPO in Hong Kong as growth drivers.
Nineteen hedge funds in Insider Monkey's database had interests in XPeng Inc. at the end of the first quarter of 2021, down from 30 the quarter before, with stakes totaling $820 million.
7. Etsy (ETSY)
Over the last 52 weeks, Etsy has fluctuated between a high of $307.75 and a low of $109.38. This year, more than a third of their worth has been wiped out, but analysts are predicting a turnaround and market-beating profits. The global e-commerce site for crafts materials, clothing, jewelry, and other goods has the unanimous recommendation of Buy with high certainty. According to Stifel analyst Scott W. Devitt, "Etsy has carved itself a favorable competitive position with high hurdles as the leader in the specialized market of handcrafted items" (Buy). "After a period of transition during which operations were scaled back, resources were reallocated, and new growth strategies were implemented, the company is now on the verge of resuming its previous level of success."
8. Urban One Inc. (NASDAQ: UONE)
Urban One Inc. is a multi-media corporation that provides services to consumers and the broadcasting industry. The 1980-founded corporation went public in 1999. With a 52-week low of $3.73 and a 52-week high of $24.16, the stock presently trades at $6.94.
UONE, one of the largest African-American-owned companies in the United States, dominates the communication services industry and has a market valuation of 326.93M USD. Despite the recent volatility in share prices, the company's financial performance over the last five years has remained stable.
The newly published quarterly report submitted to the SEC may blame this drop in share price. In addition, the price drop of 82 percent today follows rumors of a potential legal dispute between Urban One and Richmond, Virginia officials.
9. KLA Corp. (KLAC)
Like any firm involved in the semiconductor sector, KLA has been thrown for a loop by geopolitical unpredictability, worldwide chip scarcity, and supply chain hiccups. However, according to Argus Research analyst Jim Kelleher, KLAC continues to increase its market share in process control and metrology, where it leads the sector (Buy). The analyst states that "KLAC shares seem appealing at current prices with demand increasing and exceeding pre-pandemic production levels in several areas. The Street broadly agrees and rates KLAC as a unanimous Buy recommendation with high confidence. Experts predict that during the following three to five years, the business will experience average annual profits per share growth of 16 percent. Bulls assert that while KLAC may provide investors with a challenging ride, the possibility of outperformance cannot be discounted.
10. NIO Inc. (NYSE: NIO)
On our list of the 15 most volatile stocks to purchase right now, NIO Inc. (NYSE: NIO) is rated tenth. The Chinese-based business manufactures and sells electric automobiles. Its market value is above $70 billion; last year, it generated more than $2.4 billion in sales. The planned European Union plan, which would outlaw internal combustion engines used in conventional automobiles on the continent by 2035, will be advantageous to the corporation. The business just announced impressive car delivery figures for June.
Investment adviser HSBC boosted the price objective for NIO Inc. shares from $54 to $69 on July 9 and upgraded the stock from Neutral to Buy. The investing firm's analyst Yuqian Ding updated the ratings.
At the end of the first season of 2021, 28 hedge funds in Insider Monkey's database held holdings in NIO Inc., down from 34 at the end of the previous quarter, when they held interests worth $2.6 billion.
How to Benefit from Volatile Markets as a Trader
1. Establish your goals and fortify your defenses
Make sure you are emotionally and tactically equipped to handle the additional risks before trying to trade in unpredictable markets. That implies that traders feel at ease engaging in trading when volatility is high and that they are aware of the possibility of suffering a significant loss of cash.
Assuming they are "ready for action," the next step is to confirm the risk-control strategies written into the trading strategy.
Position size and stop order placement are two crucial factors. Some traders conduct smaller trades—i.e., they commit less money per trade—and put their stop prices farther from the current market price under turbulent market conditions than they would in more stable conditions.
While reducing the likelihood that you may be prematurely stopped out owing to wider-than-normal intraday price movements, the objective is to maintain your overall risk exposure at a similar level. Always remember that stop orders might be executed far from the stop price when there is a significant price difference or when the market is experiencing a quick change.
2. Pay attention to trendy stocks
Market volatility does not always reverse trends. Even if the risk may be increased, certain stocks may continue to move in a particular manner. Finding a stock steadily rising but has not yet skyrocketed higher is crucial for a buyer. Before a price acceleration, not after, is the time to buy.
Similarly, a short seller in a choppy market should search for a stock that has been falling but has not yet gone through a collapse or "waterfall" decrease.
3. Keep an eye out for consolidation breakouts
Traders frequently attempt to "buy the breakout" by watching for a stock to cross a clearly defined support and resistance zone. The price level known as support is where downward trends usually begin to wane as purchasing pressure prevails over selling pressure. As selling pressure overtakes purchasing demand, resistance is frequently where rising trends begin to stall.
The breakout trader does nothing as long as stock is contained inside that range. The trader will try to purchase immediately if the price crosses through the resistance level in the hopes that the breakout heralds the start of a fresh, persistent rise upward.
4. Take some gains into account
Consider strategies to lock in additional gains when possible because earnings might quickly disappear in turbulent markets and turn into losses. Reduce the profit objective for some of your bets as a possible solution in this situation. Alternatively, if your stock is rising quickly, think about selling some of your holdings and holding onto the rest to profit from any future increases.
Consider employing a trailing stop, a type of stop order where the stop price follows the stock's bid price as it climbs higher, but select a tighter-than-normal trailing stop price if maintaining your winnings is more important to you than maybe getting stopped out. As long as the stock is rising, keep in mind that the trailing stop price practically self-adjusts and stays below the market price by the number of points or the percentage you choose. The stop price freezes at the lowest point the stock hits once it starts to fall lower. After that, it turns into a market order when it activates.
FAQs
Which is better for stocks: high or low volatility?
Since there are more possibilities for huge swings to enter and exit over relatively short periods, high volatility equities are popular among day traders. However, long-term buy-and-hold investors frequently choose minimal volatility, where profits are made gradually and steadily over time. Greater stock market volatility might indicate heightened anxiety about a slump.
What level of stock volatility is generally accepted?
There are several techniques to calculate the average volatility when examining the entire stock market. Since the S&P 500 index has a reference beta of 1, 1 also represents the market's typical volatility when looking at beta.
Investors can look at the CBOE Volatility Index, or VIX, on an absolute basis. This calculates the S&P 500's rolling three-month average volatility. Some traders view a VIX rating above 30 as being somewhat volatile and below 20 as being in a low volatility environment. The VIX has a long-term average of little over 20.
How can volatility changes be traded?
You can resort to VIX futures and ETFs if you want to speculate on changes in volatility or trade volatility products to hedge current positions. Additionally, options contracts may be used to speculate on or hedge against volatility increases because their prices depend on the implied volatility of stocks (or indexes).
Why is stock volatility significant?
A company's (or the whole stock market's) volatility might be viewed as a sign of anxiety or unpredictability. When investors cannot make sense of the economic news or company statistics, prices can fluctuate more dramatically (up and down). Thus, a rise in total volatility may be used to anticipate a market decline. Volatility is a significant factor in the pricing of options contracts.
How can you determine a stock's implied volatility?
Computing models like the Black-Scholes or Binomial models are used to calculate implied volatility. These models pinpoint variables that might affect an equity's price in the future, establish likelihoods of outcomes, and price derivative instruments like options following their results.
Final Thoughts
Investors should decide whether to purchase high volatility stocks depending on their investment approach and comfort level with risk. One advantage of investing in erratic stocks is the possibility of a significant share price rise over a shorter period. In contrast, it can take more steady stocks months or even years to achieve that stage of share price rise.
However, it is crucial to remember that the greater the stock's volatility, the more risk you take when you buy it. Higher stock volatility will often be advantageous to you if you are someone like a day trader who can regularly monitor stock price changes. Active portfolio management is what this is. On the other hand, volatility will not be helpful to you if you choose to buy in stocks and then do nothing.
Real-time News
