The expected recovery of the stock market as the economy slowly reopens following the COVID-19 pandemic is expected to hit inflationary roadblocks in the coming weeks. The technology bubble that dominates the business world is likely to stoke volatility further. According to a report by the Labor Department in the United States, consumer prices registered record gains in April as booming demand pushed against supply constraints. The rising uncertainty has also led to speculation regarding federal policies on interest rates.
The rise of retail investing and meme stocks has also contributed to the overall bearish outlook. For example, Tesla, Inc. (NASDAQ: TSLA) owner Elon Musk, who has a large retail investor following, was recently forced to clarify that his company had not sold any Bitcoin after social media speculation around his tweets sent cryptocurrency and related stocks crashing last week. Tesla, Inc. (NASDAQ: TSLA) had announced earlier this year that it would start accepting Bitcoin as payment for electric vehicle sales, reportedly buying $1.5 billion in the cryptocurrency.
Another stock that highlights the impact of retail investing on the overall market dynamics is Coinbase Global, Inc. (NASDAQ: COIN). The share price of Coinbase Global, Inc. (NASDAQ: COIN) has fallen more than 30% since peaking in April after a blockbuster initial public offering. However, as the premier crypto firm, it is expected to recover from these lows soon. The decline is attributed to retail investors jumping ship as crypto prices plunge overall. Bitcoin, the most popular cryptocurrency, tanked close to 24% in a week after peaking at $64,829 on April 14.
Some of the market volatility is also indicative of pandemic-related bull runs that are slowing down as recovery tailwinds lead to increased interest in rebound stories. Pinduoduo Inc. (NASDAQ: PDD) has overtaken Alibaba Group Holding Limited (NYSE: BABA) as the largest ecommerce business in China, largely due to the increase in activity on its platforms during the coronavirus lockdown. Alibaba Group Holding Limited (NYSE: BABA), which has a more diverse business model, is expected to regain the position from Pinduoduo Inc. (NASDAQ: PDD) soon.
Supply chain issues that are driving up prices and inflation in general are not expected to be resolved anytime soon. The smart money is already positioning itself for further uncertainty. According to Bank of America Global Research, investors moved $57.3 billion into cash during the last week of April, the largest inflow to cash since March 2020. In the first few days of May, this was followed by the largest weekly inflow into gold in three months. It is probably fair to assume that stock volatility will continue to dominate the market in the coming weeks.
However, smart investors have always profited from economic downturns. Stubborn positions on long-term investments can sometimes also lead to catastrophes. The finance world is witness to these conditions. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of the 10 best volatile stocks to buy. These best volatile stocks have strong fundamentals, which make them worthy of our attention. While choosing these stocks, we also took into account our data of over 887 hedge funds to gauge hedge fund sentiment for each stock.
Best Volatile Stocks to Buy
10. Lam Research Corporation (NASDAQ: LRCX)
Number of Hedge Fund Holders: 56
Lam Research Corporation (LRCX) is a California-based firm that makes and sells semiconductor processing equipment. It was founded in 1980 and is placed tenth on our list of 10 best volatile stocks to buy. The equipment marketed by the firm is used in the fabrication of integrated circuits. Lam stock has returned more than 134% to investors over the past year. The 52-week price range of the stock is $253-$669. These numbers are driven by the rise in demand for semiconductors globally as the economy reopens following the pandemic.
Lam Research Corporation (LRCX) is a good option for income investors. The firm declared a quarterly dividend of $1.3 per share on May 13 with a forward yield of 0.88%. On April 22, Lam stock was given an Overweight rating by investment bank Morgan Stanley with a price target of $726.
At the end of the fourth quarter of 2020, 56 hedge funds in the database of Insider Monkey held stakes worth $2.6 billion in Lam Research Corporation (LRCX), up from 55 the preceding quarter worth $2.2 billion.
9. NXP Semiconductors N.V. (NASDAQ: NXPI)
Number of Hedge Fund Holders: 66
NXP Semiconductors N.V. (NASDAQ: NXPI) is a Netherlands-based semiconductor manufacturer. It was founded in 1953 and is ranked ninth on our list of 10 best volatile stocks to buy. The company has operations in more than 35 countries and employs more than 30,000 people. NXP Semiconductors N.V. (NASDAQ: NXPI) stock has returned more than 88% to investors in the past twelve months. The 52-week price range of NXP stock is $93-$216. The firm sells microcontrollers, application processors, communication processors, and security controllers, among other products.
On May 4, investment bank Wells Fargo gave NXP Semiconductors N.V. (NASDAQ: NXPI) stock an Overweight rating on the back of expected surge in auto sales this year. NXP generates 45% of total revenue through dealings with the auto industry.
Out of the hedge funds being tracked by Insider Monkey, Boston-based investment firm Whale Rock Capital Management is a leading shareholder in the firm with 2.7 million shares worth more than $430 million.
In its Q1 2021 investor letter, Alger, an investment management firm, highlighted a few stocks and NXP Semiconductors N.V. (NASDAQ: NXPI) was one of them. Here is what the fund said:
“NXP Semi conductors was among the top contributors to performance during the quarter. NXP Semiconductors provides high performance semiconductor solutions for a wide variety of applications, including automotive, mobile communications, consumer technology, computing, wireless infrastructure, lighting and industry. We believe NXP Semiconductors N.V. (NASDAQ: NXPI) has an attractive cyclical tailwind with the economic reopening due to its exposure to the automotive industry and the growth of the Internet of Things. NXP’s shares performed strongly after the company said it has generated revenue growth and provided healthy forward guidance driven by an improving global macro that is evident in decreasing channel inventory levels and solid pricing.”
8. Square, Inc. (NYSE: SQ)
Number of Hedge Fund Holders: 89
Square, Inc. (NYSE: SQ) is a California-based financial services firm founded in 2009. It is placed eighth on our list of 10 best volatile stocks to buy. Square stock has returned more than 171% to investors over the course of the past twelve months amid turbulence with the 52-week price range hovering between $76-$283. Square offers customers digital payments solutions and financial software through products such as Magstripe readers, Square Stand, Square Dashboard, and Square contracts, among others.
Square, Inc. (NYSE: SQ) stock has been surging since it reported strong quarterly results earlier this month. Investment advisory BTIG maintained a Buy rating on Square, Inc. (NYSE: SQ) on May 7, while Piper Sandler kept a Neutral rating on the firm while raising earnings-per-share estimates.
At the end of the fourth quarter of 2020, 89 hedge funds in the database of Insider Monkey held stakes worth $8.8 billion in the firm, up from 73 in the preceding quarter worth $6.5 billion.
In its Q1 2021 investor letter, RiverPark Funds, an investment management firm, highlighted a few stocks and Square, Inc. (NYSE: SQ) was one of them. Here is what the fund said:
“We established a position in leading Financial Technology provider Square during the quarter. Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers).
The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion (due to pass through costs, gross profit is more reflective of top-line growth) and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown from nothing in 2015 to $1.2 billion gross profit last year) has a particularly large opportunity with its powerful ecosystem of digital financial services including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app.
We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while most of the company’s current profit is from its Seller Business, we believe most of Square, Inc. (NYSE: SQ)'s future value will be from its Cash App business.”
7. Coupang, Inc. (NYSE: CPNG)
Number of Hedge Fund Holders: N/A
Coupang, Inc. (NYSE: CPNG) is a South Korea-based ecommerce firm founded in 2010. It is ranked seventh on our list of 10 best volatile stocks to buy. It is the largest online marketplace in the Asian country and posted annual revenue of close to $12 billion in 2020. The firm went public in March this year and raised more than $4.6 billion. Since the offering, the stock has surged and the firm now has a market cap of more than $63 billion. Some of the items sold by the firm online include home goods, apparel, beauty products, and fresh food and groceries.
Like Coinbase Global, Inc. (NASDAQ: COIN), Pinduoduo Inc. (NASDAQ: PDD) and Alibaba Group Holding Limited (NYSE: BABA), CPNG is one of the best volatile stocks to buy now.
On May 13, Coupang, Inc. (NYSE: CPNG) stock was upgraded to Buy from Neutral by investment advisory Deutsche Bank. The ratings update came a day after the company posted quarterly earnings, reporting customer growth of 21% year-on-year and underlining that total net revenues per customer were up 44% to $262. However, gross profit fell 40 bps to 17.4% of sales partly due to increased investments to expand offerings. Coupang, Inc. (NYSE: CPNG) has been one of the most high-profile volatile stocks on the market since the IPO two months ago.
6. JD.com, Inc. (NASDAQ: JD)
Number of Hedge Fund Holders: 89
JD.com, Inc. (NASDAQ: JD) is a Chinese online marketplace founded in 1998. It is placed sixth on our list of 10 best volatile stocks to buy. The company is one of the biggest business to consumer online retailers in the country by transaction volume and revenue. JD stock has returned more than 22% to investors in the past year. It has also been volatile, with a 52-week price range of $49-$108. Some of the products sold by the firm include home appliances, mobile handsets, desktop, laptop, and other computers, as well as luxury items.
On March 31, JD.com, Inc. (NASDAQ: JD) announced that it had entered into definitive agreements to sell the cloud and artificial intelligence assets owned by JD.com to JD Digits, the company’s fintech business. The assets are valued at over $2.4 billion.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in the firm with 51.6 million shares worth more than $4.5 billion.
In its Q1 2021 investor letter, Arisaig Partners, an investment management firm, highlighted a few stocks and JD.com, Inc. (NASDAQ: JD) was one of them. Here is what the fund said:
“Our largest holding as a firm, JD.com, we expect to grow earnings at an annualised rate of 30% over the next five years, implying it will trade on an EV / EBITDA of 7.5x at the end of this period. Is this a growth stock or a value stock? Does anyone care? Do these labels really matter?
For the Asia Fund, with a higher pre-existing allocation to our core FMCG holdings coming into the year, we took advantage of capital market volatility to further concentrate on our highest conviction names. JD.com, Inc. (NASDAQ: JD) has been the main destination for our limited reallocations as evidence continues to emerge supporting our thesis that the company has a strong right-to-win in the large and highly fragmented USD1.8th Chinese grocery market. We have also been encouraged by the fact that after years of persistence, the company is beginning to engage with us on ESG issues (we have specifically discussed data protection, climate change and the circular economy). ESG is now being considered at the board level, and specific sustainability reporting should follow in the coming months. Having long displayed a healthy obsession with customer service, we interpret these latest conversations as a sign that JD is beginning to develop a more sophisticated understanding of its impact on all stakeholders.”
5. Coinbase Global, Inc. (NASDAQ: COIN)
Number of Hedge Fund Holders: N/A
Coinbase Global, Inc. (NASDAQ: COIN) is a Delaware-based company that operates a cryptocurrency exchange platform which facilitates dealings in Bitcoin and Ethereum as well as other big cryptocurrencies. It was founded in 2012 and is ranked fifth on our list of 10 best volatile stocks to buy. Coinbase went public earlier this year and was valued at over $86 billion on the first day of trading, but the share price has dropped since then amid a turbulent few weeks for the crypto industry in general which has seen Bitcoin price plummet too.
On May 14, Coinbase Global, Inc. (NASDAQ: COIN) stock was given an Outperform rating by investment advisory Piper Sandler. Coinbase shares have been soaring after a disappointing few weeks since the IPO after it reported quarterly earnings that just trailed market estimates despite a bearish trend for crypto stocks on the market. In the earnings report, the firm posted $1.6 billion in revenue in the first three months of 2021, missing market estimates of $1.8 billion. The earnings per share were $3.05 for the period against a predicted $3.20.
4. Tesla, Inc. (NASDAQ: TSLA)
Number of Hedge Fund Holders: 68
Tesla, Inc. (NASDAQ: TSLA) is a Palo Alto-based electric vehicle and clean energy firm owned by billionaire Elon Musk. It is placed fourth on our list of 10 best volatile stocks to buy. The firm is one of the biggest on the US stock market with a market cap of more than $568 billion and has returned more than 262% to investors over the past year. However, it is also one of the most volatile stocks on the market with a 52-week price range of $157-$900. Tesla markets battery storage on a massive scale in addition to EV and clean energy products.
On May 14, news agency Reuters reported that Tesla, Inc. (NASDAQ: TSLA) was in talks with Chinese battery firm EVE Energy to supply EV batteries for the production of cars at the Tesla plant in Shanghai amid a huge rise in demand for autos in the post pandemic economy.
At the end of the fourth quarter of 2020, 68 hedge funds in the database of Insider Monkey held stakes worth $12.3 billion in the firm, up from 67 in the preceding quarter worth $8.1 billion.
In its Q1 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Tesla, Inc. (NASDAQ: TSLA) was one of them. Here is what the fund said:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
3. Applied Materials, Inc. (NASDAQ: AMAT)
Number of Hedge Fund Holders: 61
Applied Materials, Inc. (NASDAQ: AMAT) is a California-based company that makes and sells semiconductor chips. It was founded in 1967 and is placed third on our list of 10 best volatile stocks to buy. The products made by the firm are used in electronics, flat panel displays for computers, smartphones and televisions, and solar products, among others. Applied stock has returned more than 129% to investors in the past twelve months. The 52-week price range of the stock lies between $52 and $146.
On April 19, investment advisory Citi named Applied Materials, Inc. (NASDAQ: AMAT) as one of the top semiconductor equipment picks on the back of increased demand for the chips that are made using the memory and logic wafer fab equipment marketed by AMAT.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in the firm with 5.2 million shares worth more than $452 million.
2. Pinduoduo Inc. (NASDAQ: PDD)
Number of Hedge Fund Holders: 54
Pinduoduo Inc. (NASDAQ: PDD) is a Cinese technology firm that focuses on agriculture-related products. It was founded in 2015 and is ranked second on our list of 10 best volatile stocks to buy. The company has created an interactive platform that links farmers to distributors and consumers directly. The firm also sells electronic appliances, furniture and household goods, cosmetics and other personal care items through the platform. Pinduoduo stock has returned more than 78% to investors in the past year.
On March 17, Pinduoduo Inc. (NASDAQ: PDD) became the largest online marketplace in China after reporting a 164% year-on-year revenue growth in the fourth quarter of 2020 driven by pandemic sales. Total active users on the platform were 788 million in 2020, up more than 50% compared to the previous year.
At the end of the fourth quarter of 2020, 54 hedge funds in the database of Insider Monkey held stakes worth $10.5 billion in the firm, up from 34 in the preceding quarter worth $4.3 billion.
In its Q1 2021 investor letter, Tao Value, an investment management firm,, highlighted a few stocks and Pinduoduo Inc. (NASDAQ: PDD) was one of them. Here is what the fund said:
“Pinduoduo reported a strong quarter, reporting MAU of 720 million, now surpassing Taobao. However, it was overshadowed by a bigger news on Colin Huang resigning from Board and completely disassociating himself from PDD’s management & operation. Huang explained in his letter to shareholders that he would start fundamental research initiatives in food science. Although not entirely shocked (as he already stepped down from CEO July 2020), I am surprised by the fast pace of such transition. I remain confident in the organization and the culture Huang built but will monitor it closely.”
1. Sea Limited (NYSE: SE)
Number of Hedge Fund Holders: 115
Sea Limited (NYSE: SE) is a Singapore-based internet company founded in 2009. It is placed first on our list of 10 best volatile stocks to buy. The firm has business interests in Asia, Latin America, and North America. It operates in the digital entertainment, e-commerce, and digital financial service domains. Sea stock has returned more than 211% to investors over the past year. The volatility of the stock is indicated by a 52-week price range of $65-$285. The firm posted annual revenue of more than $4.3 billion in 2020.
In February, investment advisory Credit Suisse raised the price target on Sea Limited (NYSE: SE) stock to $285 from $225 on the back of strong growth prospects for the digital entertainment and ecommerce businesses of the Singaporean firm.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC is a leading shareholder in the firm with 9.2 million shares worth more than $1.8 billion.
In its Q4 2020 investor letter, Hayden Capital mentioned Sea Limited (NYSE: SE). Here is what Hayden Capital has to say about Sea Limited in its letter:
“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.
A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.
Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).
For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and
Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)
I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!
Part of this stems from the fact that Shopee tends to enter markets with a bottoms-up approach. Instead of going after urban, high disposable income users first (of which these hedge fund professionals were certainly part of), they tend to initially go after those with only a few hundred or thousand USD of annual disposable income. These users tend to reside outside of major cities, have fewer choices for recreational pastime (thus turning to gaming, short-form videos, or online shopping for entertainment), can’t afford “branded” items and thus are willing to take a chance on cheaper (but still good quality) un-branded goods, and are willing to wait several weeks for it to be shipped from Asian factories.
Anyone who has studied Pinduoduo (Nasdaq: PDD) in China, will recognize this strategy and just how large of a market these consumers can be. As Shopee gains popularity in a market, they will then start to slowly move “up-market”, and cater to more urban and higher-income consumers. They’ve already followed this exact strategy in Southeast Asia, and this is the point they’ve reached in Brazil over the past year.
Shopee made its first big social push last fall, hiring over a dozen influencers with 1M+ followers to promote Shopee’s Black Friday sale (LINK). In addition, they also released their first Brazilian TV commercial last year.
It seems these initiatives are working. Shopee now consistently ranks in Brazil’s top 5 apps (while sister app Free Fire, is also the #1 grossing app). In addition, Shopee also moved Pine Kyaw (LINK), one of their key lieutenants in Vietnam who successfully helped Shopee fight off competitors (Tiki, Lazada, Sendo), to Brazil last May.
For the past year, the company has insisted publicly that the Brazil initiative is still a “test” initiated by the cross-border team. While this may have been true at first, it’s clear this is no longer a “test”, but rather a strategic focus for Shopee and posed to be the next battleground. It’s likely the company has chosen to remain tight-lipped so as to not tip off competitors, while they quietly “position the troops” to prepare for a larger assault.
For example, Shopee is also starting to allow local sellers to join the platform and list their local inventory (LINK). By definition, this is no longer a cross-border initiative (i.e. allowing their Southeast Asian sellers to sell to Brazilian consumers, and then shipping the goods directly from Asia. This is the model Aliexpress follows.).
This is the start of a localized marketplace. And similar to their early days in Southeast Asia, the goal is to reach the “tipping point” at which the marketplace becomes self-sustainable (this concept is discussed in our Q1 2019 letter; LINK). The weapons of choice in reaching critical mass: social media influencers to drive rust & awareness, free shipping & discounts to acquire / convert these new customers, and gamification of shopping to drive continued engagement, habit building, and repeat purchases.
Given all of this, and the strong (but early) traction in the local Shopee Brazil marketplace, investors need to keep an eye on this development. It is the smallest GMV contribution among Shopee’s countries currently, but a large inherent call option in the valuation. Something that so far, seems greatly underappreciated. I suspect at some point in the near future, Shopee’s management team will disclose more on the initiative, and at which point investors will be surprised by how Shopee managed to quietly build one of the largest marketplaces in Brazil.”