Volatile stocks can be both beneficial and detrimental to one's portfolio. On one hand investors can realize greater profits with higher volatility, however on the other hand, opportunities can be more easily missed the more volatile a stock is.
Overall, it comes down to your style of investing and your level of risk adversity. There is no one right way to invest in stocks. You may want to grab hold of the broader market as part of your investment strategy. High-volatility stocks could turn into growth stocks, but they could also falter.
Let’s review some of the most volatile stocks this month as well as how to properly handle these types of securities.
The Most Volatile Stocks This Month
To begin, let’s review the top 5 most volatile stocks this month.
Cosmos Health (NASDAQ: COSM)
Cosmos Holdings Inc is engaged in the research, development, and commercialization of pharmaceutical products and medicines across the European Union member states. It offers over-the-counter drugs and branded and generic medicines. The company's focus will be on Branded Pharmaceuticals, Over-the-Counter medicines, and Generic Pharmaceuticals. It provides its products to wholesale drug distributors, and wholesalers and retail healthcare providers.
Recently, Cosmos Health announced a reverse stock split at a rate of 1 to 25, allowing for some repurchases at $11.50 per share. Investors have been mum on the stock ever since, causing its value to fluctuate wildly.
Praxis Precision Medicines (NASDAQ: PRAX)
PRAX operates within the health technology sector and specializes in developing therapies for those affected by debilitating brain disorders. The company was founded in 2015 and recently IPO’d in 2020. The 52 week range is 1.82-23.56 with the current price at $1.84/share.
The volatility in stock price can be expected in the proceeding few months after an IPO, as well as for younger companies like this one. Especially given that younger firms do not yet have a history of delivering on promises.
PRAX stock saw a 63% drop (June 6, 2022) after the company reported negative results in a study conducted to see the efficacy and safety of their monotherapy treatment, PRAX-114, for major depressive disorders. It seems that due to these results, PRAX will now refocus their efforts towards utilizing PRAX-114 for movement disorders and epilepsy.
Large swings in stock price can be expected in these clinical-stage companies as much of their investor support relies on the results of their studies, and there is great uncertainty when it comes to the results.
SoundHound AI Inc. (NASDAQ: SOUN)
SoundHound Inc. was founded in 2005 as an audio and speech recognition company. The stock price is currently at a 52 week low of $4.10, with the 52-week range being 4.10-18.14.
Shares are currently down 40%, but with no apparent news or releases for the company. However, it is important to note that the company has only recently begun trading in the public markets as its IPO date was April 28, 2022 which may explain the stock's volatility. Recently SoundHound signed a 7-year deal with car manufacturer Hyundai, which is leaving investors hopeful of a promising future.
This stock is still extremely premature but has great potential to outperform the market. The general consensus by analysts is that SOUN is a buy right now.
Urban One Inc. (NASDAQ: UONE)
Urban One Inc. is a multi-media company operating within the broadcasting industry and consumer services sector. Founded in 1980, the company IPO’d in 1999. The stock is currently at $6.94 with a 52-week low of $3.73 and 52-week high of $24.16.
With a market capitalization of 326.93M USD, UONE is one of the largest African-American owned businesses in the U.S. and sits at the top of the communication services sector. Despite the high volatility in share prices recently, the firm has had consistent financial performance over the past 5 years.
This dip in share price may be attributed to the recently released quarterly report filed with the SEC. Furthermore, today’s 82% decrease in price comes directly after news of a possible legal battle between Urban One and Richmond, Virginia officials.
Aeroclean Technologies Inc. (NASDAQ: AERC)
Aeroclean Technologies is an interior air purification technology company operating within the packaged software industry and technology services sector. AERC was founded in 2011 and recently hit the public markets via IPO on November 24, 2021. It now stands at 32.89M USD market capitalization. The stock closed at $4.75 today with a 52-week range of 1.76-117.35.
Much of this stock’s volatility can be explained by the recent IPO as it usually takes a few months to a year for a newly public company’s stock to level itself out. Furthermore, this company is still in a premature stage of developing its product and getting it out for consumers to use.
Today (June 6, 2022) AERC stock was the biggest gainer across all major U.S. exchanges. This is attributed to the news that AERC received FDA clearance for their new air purification device. This medical grade device makes promising claims saying it can eliminate 99.99% of airborne microbes including the virus that causes COVID-19. Given this achievement of FDA clearance, AERC stock has a promising outlook and room for growth.
See also: Most Volatile Penny Stocks
How Do Stocks Become Volatile?
There are several factors that go into why a stock is volatile, and the answer as to why isn’t clearly cut. Overall, stock market volatility can be attributed to many variables like uncertainty in the market, changes in policy, changes in interest rates, global events and more.
The current state of the market is a great example of what causes stocks to become volatile. Right now, the Feds are currently taking aggressive monetary action to help correct markets due to the disruptions caused by the COVID-19 pandemic. Furthermore, many industries and sectors of businesses are seeing drastic shifts due to consumer demand, the way business is practiced, as well as innovations in technology.
All in all, these factors lead to a lot of uncertainty on what will happen in the future. As a result of this high level of uncertainty, stocks are very volatile as well as the overall market. Asset prices often change, but they cannot determine all of your risk tolerance. Check the financial markets and stock exchanges to learn how badly these stocks are fluctuating to determine which investments are best for you.
Should Investors Buy Volatile Stocks?
Whether or not an investor should buy volatile stocks will depend on their investing style and level of risk adversity. One benefit to investing in volatile stocks is that there is a greater chance of major growth in share price in a shorter period of time. Whereas more stable stocks may take months or even years to reach that point of growth in the share price.
However it is important to consider that the more volatile a stock is, the larger risk you are taking on by investing in it. Generally if you are someone like a daytrader, who is able to consistently watch the price movements of a stock, higher volatility in stocks will be beneficial to you. This is known as active portfolio management. On the other hand, if you prefer to invest in stocks and then sit back (passive portfolio management) volatility will not be beneficial to you.
What is “Buying the Dip”?
Buying the dip is a well known phrase amongst the investor community. The phrase refers to when an investor purchases a stock after its price has fallen, in hopes that they will realize a greater return.
This is under the belief that stock’s ‘dip’ is only short-term and that the price of the security will likely bounce back and further increase in value. Buying the dip does have the potential to generate great returns, however on the chance that the stock doesn’t bounce back, you may lose your investment.
While this may seem like a risky strategy; remember that the bigger the risks you take, the greater the potential return may be.
When to Sell Volatile Stocks
When to sell a stock can be different for everyone. Generally when investing in volatile stocks, a good time to pull out is after the cost of the strategy is covered. A good time to pull out may be when you see a downwards pattern in the share’s volatility.
However there is no one right answer. It is best practice to set limits for yourself as to when or why you will choose to sell your stocks. To even better protect yourself from the downfalls of emotional trading, you can set buy or sell limits through the exchange you are trading on. This way, no matter what, when the stock price triggers one of your preset limits the stock will automatically buy or sell itself.
Frequently Asked Questions
What is the most unstable stock?
Some of the most unstable or most volatile stocks right now are BTOG, EFOI, TPTX, and GLTO, according to trading view.
Is Tesla a volatile stock?
Tesla is widely known as a volatile stock.