Nothing drives interest the way speculative stocks seem to.
Buy the rumor and sell the news. That’s a long held adage and trading strategy on Wall Street and speaks to the fact that speculation abounds when it comes to speculative stocks.
Often times, whispers that a company is about to be acquired or split its stock are enough to send share prices soaring. Those same stocks can come crashing back to earth once official news reports clarify the situation, often debunking the rumors that had led a particular stock to rally.
Such is the nature of investing. And with internet chat rooms full of people speculating and spreading rumors about stocks around the clock, it can be increasingly difficult for retail investors to separate fact from fiction.
Currently there are several rumors circulating that, if true, could lead to big gains in certain securities. In this article, we look at seven speculative stocks to buy if you believe the rumors related to them.
|Chipotle Mexican Grill
Activision Blizzard (ATVI)
Rumor has it that Microsoft’s (NASDAQ:MSFT) $68.7 billion acquisition of video game maker Activision Blizzard (NASDAQ:ATVI) will be approved by antitrust regulators around the world and conclude next year.
If that rumor proves true, Microsoft will end up paying $95 a share for Activision Blizzard in an all-cash deal. That $95 a share would represent a a nearly 20% premium over the current share price of $80.
Investors who are willing to take a calculated risk, could buy ATVI stock now and sell their stake in the company for a 20% profit when the acquisition by Microsoft concludes in 2023.
Buying speculative stocks in hopes of tendering the shares for a profit in a successful takeover is known as arbitrage play. And at least one high-profile investor is doing exactly that with ATVI stock.
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) has been accumulating shares of Activision Blizzard, betting that they will be able to tender them for a profit once Microsoft’s acquisition of the video game company is given the green light by regulators.
Buffett added to his Activision Blizzard stake as recently as this year’s second quarter and now owns more than 74 million shares of the company worth in excess of $6 billion.
The rumor is that Elon Musk is going to be forced by a court to buy social media giant Twitter (NYSE:TWTR) for the original price he agreed to of $44 billion, or $54.20 per share.
Should Musk be forced by a court in Delaware to honor the agreement he signed this past spring to purchase Twitter, then the acquisition price will represent a 21% premium to Twitter’s current price of $44.80 a share.
Of course, Musk, who is also chief executive of electric vehicle maker Tesla (NASDAQ:TSLA), has tried everything under the sun to get out of the deal to buy Twitter. But with the case heading to court this October, there is a very real possibility that he could be forced to buy the company.
Investors willing to bet on the rule of law, could purchase TWTR stock now in hopes of tendering their shares and making a tidy profit once the Twitter acquisition is completed, in much the same way they would with shares of Activision Blizzard.
Of course, the situation with Twitter is much more acrimonious and anything could happen once the legal case begins. However, analysts who have been following the saga seem to feel that the judge in the case will render a verdict quickly.
The rumor is they are likely to side with Twitter and force Musk to buy the social media company. Should this be the case, a quick profit could be made by shareholders of TWTR stock.
Embattled company Roku (NASDAQ:ROKU), which makes internet-connected television sets and runs an online advertising business, is a takeover target. Or so the rumor goes.
That rumor turned out to be false as Netflix ended up partnering with Microsoft for its new advertising venture. Yet rumors that Roku, whose share price has fallen 76% in the past 12-months, will be acquired just won’t go away.
Who else could acquire Roku? And would an acquisition be the best thing for Roku at this point? There have been media reports that Comcast (NASDAQ:CMCSA) and even Amazon (NASDAQ:AMZN) could potentially buy Roku, whose market capitalization currently stands at $11 billion.
While a concrete acquisition has not yet emerged, rumors of a takeover persist. With ROKU stock down 64% since the start of the year a sale might be what’s needed to boost the flagging share price.
While takeovers are usually great catalysts to push a stock higher, so too are stock splits.
The popular quick-service restaurant chain that specializes in Mexican cuisine has been a publicly traded company since 2006 but has never split its stock which makes it fit nicely among these prime speculative stocks.
Consequently, CMG stock currently trades at $1,700 per share. That’s quite pricey for most retail investors and puts the stock out of reach for many people.
As such, analysts who cover the company (and hopeful investors) say the time is right for Chipotle to finally relent and split its stock, bringing the price per share down and sparking a buying frenzy among investors and traders.
But whether Chipotle will actually split its stock remains unknown. To date, the company has said very little on the subject. But it’s fun to speculate.
There was a rumor a few weeks back that online trading platform Robinhood Markets (NASDAQ:HOOD) was going to be acquired by privately held FTX, the cryptocurrency exchange run by MIT graduate Sam Bankman-Fried.
While many analysts saw the potential marriage of Robinhood and cryptocurrency as a match made in hell, the rumor turned out to be false, with Bankman-Fried saying there are no active talks underway between the two companies.
Yet, Robinhood is among these speculative stocks to buy because people believe the company needs to be acquired.
Fueling the speculation is the notion that now that the pandemic-fueled trading frenzy has cooled and HOOD stock has cratered 77% since last summer to trade at $11 a share.
HOOD stock is now trading nearly 80% below its 52-week high of $55.01 per share. The company has released dreadful earnings this year and recently announced that it is cutting nearly a quarter (23%) of its workforce after missing on both the top and bottom lines with its Q2 results.
So, where does the company go now?
At its current valuation, and with a market cap of $9 billion, many analysts on Wall Street say that Robinhood remains a likely takeover target. Analysts at Citigroup (NYSE:C) recently issued a note to clients saying that HOOD stock could be worth $15 a share in a takeover, which would represent a premium of 36%.
This next rumor is, admittedly, an ugly one. But investors who believe the rumor that Russia is likely to cut off oil and natural gas supplies to western European nations this coming winter.
We already got a glimpse of what this situation might look like when Russian temporarily shutoff a pipeline delivering natural gas to Europe for maintenance repairs in July, raising political alarm bells and causing oil and natural gas prices to spike.
Germany, France and other countries are racing to stockpile oil and gas before the cold weather arrives, but indications are that the stockpiles will be insufficient and run out before spring.
There is also no way to know exactly what Russia will do once the snow flies, but new all-time highs for prices of crude oil and natural gas are likely.
That would be a boon for energy giants such as Chevron, which just reported record second quarter revenues on the back on elevated oil prices.
Chinese technology giant Alibaba (NYSE:BABA) would be a great stock to buy for investors who believe the rumor that authorities in Beijing are done beating up on large, publicly traded domestic companies.
Over the past two years, Alibaba has been hit with a record antitrust fine of $2.8 billion and seen its stock collapse 70% to now trade at under $100 a share. The situation got so bad that Alibaba founder and chief executive officer (CEO) Jack Ma went into hiding for a period of time.
But indications are that Chinese authorities are easing up on their crackdown of Alibaba and other technology concerns.
Official comments from government authorities in recent weeks hint at a loosening of restrictions and punishments imposed on publicly traded companies.
If true, now would be an excellent time for investors to scoop up shares of BABA stock on the cheap. Alibaba’s share price hasn’t been this low since late 2016 and is hovering right around the company’s 2014 IPO price.
Of course, the situation in China remains unpredictable at the best of times, but investors with an appetite for risk might want to roll the dice on Alibaba stock, betting that the worst is over.
On the date of publication, Joel Baglole held long positions in MSFT, GOOGL and C. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.