Much of my Stocks and Shares ISA is invested in rock-solid, large-cap stocks. I’m talking about stocks such as Apple, Microsoft, Diageo, and Unilever.
However, I do invest a bit of capital in more speculative growth companies in the pursuit of explosive returns. With that in mind, here’s a look at three high-risk, high-reward stocks I’ve bought for my ISA.
An EV play
First up is Volex (LSE: VLX). It’s an under-the-radar UK manufacturing company that specialises in power cords and cables.
There’s no doubt that this stock is a higher-risk investment. Manufacturing is a cyclical industry meaning that it has its ups and downs. And downturns can be quite brutal for companies within the industry (businesses in this space often have high fixed costs).
However, on the rewards front, I see the potential for big gains. This is a company that makes products for a number of growth markets including the electric vehicle (EV) and data centre industries. So revenues and earnings should increase significantly in the years ahead.
And right now, the stock is dirt cheap. Currently, its forward-looking price-to-earnings (P/E) ratio is just 12. That’s the kind of valuation seen on a large-cap business with minimal growth.
So I’m excited about its prospects.
An e-commerce powerhouse
Next we have US-listed stock Shopify (NYSE: SHOP). It operates a subscription-based e-commerce platform that allows merchants to set up their own online stores easily.
This stock is risky for several reasons. One is that its valuation is sky-high. Currently, the forward-looking P/E ratio here is about 73.
Another is that it has historically been very volatile, so this is a stock that can experience wild swings.
Taking a long-term view however, I’m confident this stock will provide me with strong returns.
These days, new retail brands are popping up everywhere and turning to Shopify to power their online stores. I expect this trend to continue in the years ahead, driving revenues higher (analysts expect 24% revenue growth this year).
Ultimately, I see bags of potential in the long run.
A 5G rollout stock
Finally, we have Calnex Solutions (LSE: CLX). It’s a small company specialising in testing and measurement solutions for the telecoms industry.
This stock is risky because it has a market-cap of just £103m. Generally speaking, companies of this size tend to have volatile share prices.
Additionally, the company’s valuation is quite high right now. At present, the forward-looking P/E ratio is about 34.
On the reward side of the equation however, I see huge potential. The telecoms industry is likely to require a lot of testing and measurement services in the years ahead. Right now, networks are simply not equipped to handle a lot of new technologies being rolled out today (eg self-driving cars).
So I think Calnex is well placed for growth. And with a market-cap of just over £100m, and founder Tommy Cook leading the company, I see the potential for significant gains from here.
