The broad market conditions remain challenging because of macroeconomic and geopolitical headwinds. That’s unlikely to stop trading and speculative activity across asset classes. As a matter of fact, when there is a flurry of new for the markets to digest, it translates into volatility and significant price action. I would therefore not shy away from exposure to speculative stocks for some quick gains.
In general, speculative stocks represent companies with average or weak business fundamentals. However, even the worst of stocks tend to bounce back strongly from oversold levels. Furthermore, if the short interest is high in speculative stocks, it translates into a massive short covering rally.
The focus of this column is on three speculative stocks with average fundamentals. However, few specific business and industry factors can serve as catalysts for a big rally. Let’s discuss the reasons to be bullish on these stocks to buy.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock has been trending lower for an extended period. At current levels of $2.3, PSNY stock seems deeply oversold. I would not be surprised with a 100% rally within the next few months.
As an overview, Polestar is an electric vehicle marker and the company has been struggling with cash burn. The recent raising of funds has contributed to stock downside. However, I believe that the selling is overdone because of the following factors.
First, the company has already initiated cost cutting measures and it’s likely that EBITDA level losses will narrow in the coming quarters. Operating leverage will contribute to better margins as delivery growth accelerates next year.
Furthermore, the company expects first delivery of Polestar 4 in China before the end of the year. The delivery of Polestar 5 is also due next year. New models are likely to contribute to the acceleration in deliveries growth.
The outlook therefore is positive in terms of cost cutting and revenue growth. Additionally, recent fund raising ensures that the company is fully financed for the next few quarters.
Bitfarms (BITF)
Bitfarms (NASDAQ:BITF) is another name among speculative stocks to buy that can go ballistic in quick time. The Bitcoin (BTC-USD) miner had surged from 43 cents at the beginning of the year to highs of $2.1. However, with correction in Bitcoin and with profit booking, BITF stock trades at $1.2.
Given the fact that Bitcoin is trending higher, I believe that the stock is poised for another breakout rally. I must mention that Bitfarms has decent fundamentals. As of Q2 2023, the company reported a liquidity buffer of $65 million. Furthermore, the company expects to be debt free by February 2024.
Bitfarms has also been gradually expanding its mining capacity. As of October, the company reported capacity of 6EH/s, which was higher by 50% on a year-on-year basis. Considering the financial flexibility, I expect mining capacity expansion to continue. This will translate into higher revenue and EBITDA growth. Being a low-cost miner, EBITDA margin expansion visibility is significant if Bitcoin surges.
Tilray Brands (TLRY)
Cannabis stocks have remained depressed for an extended period and I believe that a major reversal rally is impending. Tilray (NASDAQ:TLRY) stock has corrected by 33% for year-to-date and the short interest remains high at 15%.
Besides the possibility of a rally from oversold levels, there are fundamental factors to be positive. First, the company has already established itself among the leading craft beer players in the United States. Through multiple acquisitions, the diversification is likely to help in supporting growth.
At the same time, the acquisitions have helped Tilray in creating a strong strategic infrastructure in the U.S. This is likely to help in aggressive expansion if cannabis is legalized at the federal level. It’s worth noting that for Q1 2024, Tilray reported 15% year-on-year growth in revenue to $177 million. While Canadian cannabis revenue increased by 16.5%, international growth was 37%. With inroads in medicinal and recreational cannabis business, the outlook is positive.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.