2 risky shares for investors to consider buying

It’s important to consider what could go wrong when working out which shares to buy. But sometimes the potential rewards can be worth the risks.

| More on:
A young black man makes the symbol of a peace sign with two fingers

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Investors who want to eliminate the possibility of losing money entirely probably shouldn’t buy shares. Even the safest stock market investments have a chance of going wrong. 

The key to investing well though, is working out when the potential risks are worth the expected rewards. Here are two UK stocks I think are interesting from this perspective.

Synthomer

Synthomer’s (LSE:SYNT) a speciality chemicals firm that’s been having a tough time since the pandemic. And this shows up in the company’s balance sheet.

According to its latest update, net debt has gone from £500m to £560m over the last six months. That puts it at 4.7 times EBITDA, which is a lot for a cyclical business – and this is the big risk.

For many, that might be enough to put them off Synthomer entirely. But there’s also plenty to be positive about that I think makes it worth a look for investors. 

Synthomer P/S ratio 2015-24


Created at TradingView

First – and most obviously – the stock’s unusually cheap at the moment. On a price-to-sales (P/S) basis, it’s trading at some of its lowest levels for a decade. 

Second, the company has been dealing with unusually low demand from its end markets, especially construction. This has been going on for some time, but I don’t see it lasting forever.

The firm’s net income’s expected to be negative, but free cash flow this year should be positive. Investors who are able to be patient could find there are big rewards when things pick up.

Taylor Wimpey

Along with other UK housebuilders, Taylor Wimpey’s (LSE:TW) being investigated by the Competition and Markets Authority (CMA). And the outcome’s very uncertain.

That makes the shares risky. And unlike Synthomer, it’s not as though this is reflected in a low P/S multiple – Taylor Wimpey’s trading roughly in line with its historic levels.

What investors do get though, is an unusually high dividend yield. At the moment, it’s above 6%, which is well above its average over the last decade. 

Taylor Wimpey dividend yield 2015-24


Created at TradingView

A high yield can sometimes be a sign investors are worried about the dividend being cut. But with Taylor Wimpey, I think it’s easy to overestimate the danger of this. 

The company bases its dividend on its assets, rather than its cash flows. This makes it more durable in the event of a downturn and is the reason I’d consider it over other housebuilders.

As a result, I think Taylor Wimpey might be a good stock for investors looking for passive income to consider buying. Despite the uncertainty, the dividend could generate good returns.

Risks and rewards

Even by ordinary stock market standards, I’d suggest both Synthomer and Taylor Wimpey are unusually risky. In each case, though, I can see the potential for big returns if things go right. 

Synthomer’s stock could climb sharply when its end markets recover. And if Taylor Wimpey comes through the CMA investigation, investors could be collecting dividends for a long time.

I wouldn’t make either a big part of my Stocks and Shares ISA. But I do think they could be interesting additions to consider for a diversified portfolio for investors prepared to tolerate the risks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Will the Lloyds share price drop to 50p in 2025 and should I buy the stock if it does?

The Lloyds share price has fallen 12% in six weeks, making the stock cheaper on a price-to-book basis than NatWest.…

Read more »

Investing Articles

As BT’s share price drops 8%, should I buy more?

BT’s share price looks a bargain to me on several key stock measurements, offering a high yield as well, supported…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

After falling 87% in 45 months, could Dr Martens be a winning value stock?

Ahead of its half-year results due to be released later this month, our writer considers whether this FTSE 250 icon…

Read more »

Investing Articles

Forget the FTSE 100! Here are 3 dividend shares to consider for a great passive income

If searching for ways to supercharge a passive income portfolio, these non-Footsie dividend shares are worth a closer look, says…

Read more »

Investing Articles

Up 41% and 17%, these FTSE 250 shares still look like bargains to me!

Looking for the best FTSE 250 shares to buy at rock-bottom prices? Here are two Royston Wild thinks deserve close…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: November’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Young female analyst working at her desk in the office
Investing Articles

Here’s how I’d target a £23k second income with £300 a month

If I was building a shares portfolio today, here's how I'd go about it. With these strategies I stand a…

Read more »

Investing Articles

Tesla stock, MicroStrategy: here’s what Hargreaves Lansdown investors bought last week

MicroStrategy and Tesla stock were among the most popular investments last week as Donald Trump boosted markets with his election…

Read more »