Stock Market

Investors Are Fleeing Growth Stocks. 5 Risky Stocks They’re Watching Instead.

In last Sunday’s InvestorPlace Digest, I noted how InvestorPlace.com readers were shifting their focus away from growth stocks.

SoundHound AI (NASDAQ:SOUN) down 25%…

Xometry (NASDAQ:XMTR) down 43%…

Silvergate Capital (NYSE:SI) down 60%…

Investors have seen this story before, most recently in 2022. And they’re not sticking around to get burned again.

In its place, we’ve seen an enormous surge of interest in… well… everything else. This week, our most popular article included Louis Navellier’s 7 Stocks That Just Have No Hope Left, a good, hard look into marginal companies. One of these firms, Exela Technologies (NASDAQ:XELA), saw prices rise 50% on renewed speculative interest this week.

We’ve also seen increased interest in Tesla (NASDAQ:TSLA) alternatives. These speculative startups look far more like “hypergrowth” picks than traditional “growth” stocks.

As the U.S. Federal Reserve continues to telegraph more rate hikes, here are the five stocks we’re seeing InvestorPlace.com readers watch.

1. AMC Entertainment (AMC)

Source: Sundry Photography / Shutterstock.com

AMC Entertainment (NYSE:AMC) turned into an extreme case of “buy the rumor, sell the news” this week after announcing Q4 earnings. Shares initially spiked around 25% before earnings, then came crashing back down after results were in.

The incredible round-trip was likely caused by hyperactive trading of near-dated options. It’s a powerful way to make speculative, leveraged bets, but it also causes extreme volatility in the underlying stock as market makers readjust their hedges.

That’s possibly also the reason we’ve been seeing increased investor interest in AMC’s APE preferred shares. It’s a class of shares that carries additional risk, but also potential 150% gains. The company scores an A- on my quantitative Profit and Protection stock-picking system.

2. Rivian (RIVN)

Source: Michael Vi / Shutterstock

Shares of Rivian (NASDAQ:RIVN) tumbled 18% this week after reporting lower-than-expected guidance. The electric vehicle firm now expects to deliver only 50,000 units, 17% shy of Wall Street’s estimates. The company also revealed its cash position declined by $2 billion in the quarter, drawing snide comparisons from online commentators to ride-hailing companies.

Still, investors remain engaged and interested, according to data from our site. Samuel O’Brient’s Q4 earnings preview was one of our most-read articles going into the week, and shares of Rivian have been surprisingly resilient after its depressing guidance.

The company also scores an A on my quantitative system for its enormous revenue growth rate and negative stock momentum. As a reminder, hypergrowth firms that have lost share price tend to perform better than average over the following 12 months.

3. Mullen Automotive (MULN)

Source: Ringo Chiu / Shutterstock.com

Fans of Mullen Automotive (NASDAQ:MULN) continue to frequent our site to learn about upcoming events. Eddie Pan’s Mark Your Calendars for March 7 spoke at length of Bollinger’s Work Truck Week, an event where the subsidiary plans to showcase its new B4 Chassis Cab. And every price jump seems to spark interest of whether a short squeeze is happening.

Mullen fans, after all, are a dedicated lot.

The stock, of course, only scores a C- grade on my system. The EV startup’s stagnant growth and low fundamental quality suggest that shares will drop over the following 12 months. Only its rock-bottom share price saves the firm from earning a D or F.

4. Troika Media Group (TRKA)

Source: Shutterstock

Troika Media Group (NASDAQ:TRKA) continues to trend after notching a 35% gain last week. The stock is up around 110% since the start of the year.

In March 2022, the NYC-based shell company merged with Converge Direct, a customer acquisition firm that expected to generate over $27 million in adjusted EBITDA in 2022. Even with middling valuations, that prices TRKA shares at around $4.70.

Still, markets are pricing TRKA based on its predecessor’s financials — a shell company with zero profits. And if retail investors have it their way, they could well be sitting on the next 1,000% stock.

5. The Housing Market

Source: shutterstock.com/Lerbank-bbk22

Finally, investor interest has turned to the housing market this week. Shrey Dua’s preview of the December Case-Shiller figures seemed to hit home for many readers, and similar warnings have since emerged. This week, the Economist published an article that cautioned about builder discounts. “America’s property market suggests recession is on the way,” the piece said in no uncertain terms. “The sector [is] on a weaker footing than it appears and the Fed [is] compelled to keep rates higher for longer.” And the Case-Shiller index itself showed a sixth-straight decline in home prices.

Home prices are now expected to fall around 4.5% this year, according to a poll of property analysts by Reuters.

Optimism is still higher than where we started in January. Shares of Rocket Companies (NYSE:RKT), a mortgage lending firm, are up 20% since the start of the year. Stabilizing mortgage rates and generous mortgage incentives have pushed some buyers back into the market.

But if our reader’s choices are any indication, the U.S. could still be in for a recession this year.

Conclusion: Investors Are Reaching for Return

In 2022, we saw sustained interest in Tesla and other Cathie Wood-backed growth stocks long after the market had peaked. Thanks to the enormous 2020-2021 bull market, investors were sitting on sizable capital gains. That, in turn, seemed to make people relatively complacent about losses.

It’s a completely different story for 2023. This time, investors are leaving as quickly as they jumped in. January’s AI bonanza is now getting replaced by an even bigger one in meme stocks and turnarounds.

It’s not an easy way to make money. An investment in AMC could have lost investors 20% this week if you bought at the top of the market.

Still, that’s not stopping investors from taking risks. If companies like Tesla are turning their attention to riskier ventures, why wouldn’t former TSLA fans do the same?

On the date of publication, Tom Yeung 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.

Tom Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.

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