Analysts recommend these high-beta stocks.
Volatile stocks can generate big returns for long-term investors willing to hold on for a bumpy ride. In statistical terms, beta represents the slope of the line through a regression of data points plotting an individual stock’s daily returns against the returns of the overall market. Practically speaking, beta is a ratio of how much a stock tends to move on a daily basis relative to the S&P 500. The higher its beta, the more volatile a stock is likely to be. Here are seven Morningstar-recommended, high-risk stocks with betas of at least 1.3.
Sabre Corp. (ticker: SABR)
Sabre operates a platform that connects airlines to travel agencies and provides software solutions for the global travel industry. The travel industry has been through a rough stretch in the past year, but analyst Dan Wasiolek says Sabre shares are undervalued following the stock’s recent sell-off after its first-quarter earnings report. Wasiolek says Sabre is a great option for investors looking for a later-cycle travel rebound play. Sabre has a beta of 2.3, making it one of the most volatile stocks on this list. Morningstar has a “buy” rating and a $17.10 fair value estimate for SABR stock.
Advanced Micro Devices (AMD)
Advanced Micro Devices is a semiconductor producer that makes personal computer central processing units and graphics processing units, as well as server chips for data centers. In recent years, missteps by larger competitor Intel (INTC) left the door open, and AMD has taken advantage by gaining market share from Intel in both the CPU and server chip markets. Analyst Abhinav Davuluri says AMD shares remain undervalued given its outlook for 50% revenue growth in 2021. AMD has a beta of 2.05. Morningstar has a “buy” rating and a $101 fair value estimate for AMD stock.
NOV, formerly National Oilwell Varco, is a large-cap oil services company. Economic shutdowns in 2020 crushed the oil industry, but crude oil prices have now rallied 155% from a year ago. Analyst Preston Caldwell says NOV is the “undisputed leader” in rig equipment. While improved efficiency in U.S. shale has weighed on rig demand, Caldwell says investors shouldn’t write off NOV ahead of a potential large recovery in global energy capital expenditures in the next several years. NOV has a beta of 2.27. Morningstar has a “buy” rating and a $28 fair value estimate for NOV stock.
Tenneco designs and produces clean air, powertrain and ride performance products for the auto industry. Despite noise from a global chip shortage, auto sales recovered nicely in the first quarter of 2021. Analyst Richard Hilgert projects a 14% rebound in Tenneco’s 2021 revenues off of pandemic lows and annualized revenue growth of 3% moving forward. Tenneco’s DRiV ride performance group also gives the company exposure to autonomous vehicle technology, which could serve as a sizable long-term growth driver. Tenneco has a beta of 2.55. Morningstar has a “buy” rating and a $30 fair value estimate for TEN stock.
Adient is a leading supplier of automotive seating. Analyst David Whiston says Adient’s recent balance sheet improvements were badly needed. So far in 2021, the company has paid back 90% of its 2026 notes with a 7% interest rate, and Whiston says the remaining $80 million of those notes could be repaid as soon as June. Adient now has financial breathing room given its next large maturity of $1.2 billion in 3.5% bonds isn’t due until 2024. Adient has a beta of 3.3. Morningstar has a “buy” rating and a $65 fair value estimate for ADNT stock.
Frank’s International (FI)
Frank’s International is an oil services company that specializes in tubular services. Frank’s is currently in the process of completing a merger with Expro that is expected to close in the third quarter of 2021. Caldwell says the terms of the merger aren’t ideal for Frank’s investors, but the company should get a profitability boost from the deal. Caldwell says Frank’s is the gold standard of casing and tubular services, and the company should benefit from an oil market rebound. Frank’s has a beta of 1.36. Morningstar has a “buy” rating and a $5 fair value estimate for FI stock.
Polaris produces power sports vehicles, including off-road vehicles, snowmobiles and motorcycles. Analyst Jaime Katz says the recent announcement that interim CEO Mike Speetzen will be taking over the role permanently is bullish for investors given Speetzen’s track record in the powersports industry. Katz projects an impressive 32% average return on invested capital for Polaris over the next five years. He says brand awareness efforts, a wider customer demographic and scale and efficiency gains could all be bullish long-term catalysts. Polaris has a beta of 2.01. Morningstar has a “buy” rating and a $173 fair value estimate for PII stock.
Seven high-risk stocks that are worth the volatility:
— Sabre Corp. (SABR)
— Advanced Micro Devices (AMD)
— NOV (NOV)
— Tenneco (TEN)
— Adient (ADNT)
— Frank’s International (FI)
— Polaris (PII)
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Update 05/19/21: This story was published at an earlier date and has been updated with new information.