3 Stocks I am looking at for June 2020
Updated: Jul 3, 2020
This week, we saw 3 red days in a row and the whole week was negative overall. Once we had the market close ~2% on Tuesday, we started seeing articles “forecasting” the dreaded crash. Well, I still maintain that we will see another sharp drop like we saw in February. Which is why I am hesitating to put in any money for the long term. What I have been doing however, is to get involved in more short term plays as the volatility is presenting a lot of opportunities.
I was lucky to get involved in some of these trades, making about 7 to 8% this week alone. So, I have changed my strategy a little bit. I still have the bulk of my portfolio in stocks that I believe will appreciate in the long term. But I do not want to put in more until the market crashes. Therefore, I am seeking more short term trades, which I hope to cash in on within a couple of months. This post lists some of the stocks that has my curiosity and I will likely be buying them when the opportunity is right.
Draft Kings (DKNG)
The first stock that has really got me intrigued is Draft Kings (DKNG). This company just started trading in April 2020 and the stock price is already up by 50% and I see this potentially appreciating more once the economy and businesses return to normal.
Draft Kings are the leading sports betting platform in the US and have a growing presence overseas. On top of sport betting, they also have sports related games such as fantasy sports that is a growing market.
I think Draft Kings would be a good play both for short term or long term because right now, all major sports have been suspended. I fully expect Draft Kings to see a sharp growth in their revenue once sports start back up again, which I expect to happen in the next couple of months. The company also has a strong balance sheet with $450 million cash with a monthly cash burn of $20 million. This means, they can theoretically survive to up to a year without major sports starting up.
The market also seems to have a bullish sentiment on this company as the stock has been climbing strongly the last few days even while the rest of the market was falling. My strategy would be to buy this once it dips a bit and hold until the major US sports start up again. While this could be interesting and profitable to hold in the long term, I do not plan on doing so, simply because I believe after sports starts again, the stock will spike and go back down, since we are not actually in a strong economy.
Matador Resources (MTDR)
The second company I am monitoring closely is Matador Resources (MTDR). This is an oil and gas company and expectedly had been hit very badly as the US Oil prices came crashing down few months ago. I want to capitalise on the recovery, and to do that I am going for the small cap oil companies instead of the larger ones like Shell and BP. This is because I want to profit on the volatility of these smaller companies.
MTDR which is one of the smaller oil and gas companies, was trading at about $10 only a few months ago. It fell to a low of about $2 along with the other oil and gas stocks, but has since recovered very strongly.
I believe that the oil prices will eventually recover and the industry will go back to normal. So I could invest in the larger oil companies who would be a safer bet but with a lower return. Or could find the smaller companies who’s stocks were hit pretty badly by the oil market and bet on those that are the most likely to recover.
In the table below, I have 5 small cap oil companies (Market caps of $500m to $2b). And I specifically chose these 5 because they have relatively high trading volumes. And they have all had a significant drop in the stock price but have since recovered. Out of these, I basically wanted to ascertain which ones are the most likely to survive and go back to their original average price. And it seems like MTDR is the one that is most likely go back to its 90 day average price since it has recovered the most strongly.
So this is my strategy. We have seen a lot of volatility in the market in the last few days. What I intend to do with MTDR is to buy it up when it goes below $7 and sell it at a high $7.XX because I think it will trend towards its 90-day average price. I have a preference for MTDR simply because it is the closest to its average price and I think it will get there soon.
I might also consider investing in Kosmos Energy (KOS) if the price dips because it is showing signs that it is likely to recover as well.
Of course these companies, being small caps presents a high level of risk, but I think there is potential of making upwards of 5% per week if the opportunities arise.
VectoIQ Acquisition Corp. (VTIQ)
Out of the 3 mentioned in the post, I think this would be the riskiest play, but with the highest potential returns. VTIQ is basically a shell company which does not do have a business. If you Google this company, you’ll find that it has a grand total of 4 employees! So what’s the buzz around VTIQ then, after all it has doubled in price in the last 1 week alone.
VectoIQ basically has merged with Nikola Motor Company, which is looking to go public. When companies go public, they can choose to list their own stock, which requires a lot of regulatory work in order to get listed. The alternative is to merge with one of these shell companies and change the ticker after the merger has been done. So to put it simply VectoIQ has “acquired” Nikola.
This merger is almost completed and Nikola has announced that the stock will change sometime in June which is when you can actually invest in Nikola. So does this mean I want to invest in Nikola? Not at all, I have my doubts about whether Nikola will even be able to get close to Tesla, a company they are trying to emulate (the name should give that away). I believe that once, Nikola starts trading there will be considerable interest in the stock which should cause a short period where the stock price will sharply rise.
So there isn’t much logic behind it, except that newly IPO’d stocks usually see a sharp spike which I want to capitalise on. What’s essential is to get in on this early and wait for interest to build and then sell it off.
I will make another post on Nikola in the future. If you want to invest in that company then VTIQ is absolutely the stock you should be buying. But for me, I am doing this purely based on speculation. High risk, high reward.
So these were my 3 stock picks for short term trading this week. Some are speculative, and some really rely on external factors to work in my favour. I am only allocating a small amout of capital to these trades and an am aware that there is a high chance of a loss. So I would urge my readers to look into them, but definitely do more research before starting such speculative trades.
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence