2 Risky Stocks for Investors to Consider Buying

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

The key to investing well, however, is figuring out when the potential risks are worth the expected rewards. Here are two UK stocks that I find interesting from this perspective.

Syntomer

Syntomer‘s (LSE:SYNT) a specialty chemicals company that has fallen on hard times since the pandemic. And this appears on the company’s balance sheet.

According to the latest update, net debt has risen from £500 million to £560 million in the last six months. This represents 4.7 times EBITDA, which is a lot for a cyclical business – and this is the big risk.

For many, this may be enough to turn them away from Synthomer completely. But there are also a lot of positive reasons that I think are worth a look for investors.

Synthomer P/S Ratio 2015-24

Created in TradingView

First – and most obviously – stocks are exceptionally cheap right now. On a price-to-sales (P/S) basis, it is trading at some of the lowest levels in a decade.

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

The company’s net income is expected to be negative, but free cash flow this year is expected to be positive. Investors who can be patient may find there are big rewards when things improve.

Taylor Wimpey

Along with other UK construction companies, Taylor Wimpey‘s (LSE:TW) being investigated by the Competition and Markets Authority (CMA). And the result is very uncertain.

This makes stocks risky. And unlike Synthomer, it’s not as if this is reflected in a low P/S multiple – Taylor Wimpey’s trading is roughly in line with its historical levels.

What investors get, however, is an unusually high dividend yield. Right now, it is above 6%, which is well above the average for the last decade.

Taylor Wimpey Dividend Yield 2015-24

Created in TradingView

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

The company bases its dividends on its assets rather than its cash flows. This makes it more durable in the event of a recession and is the reason I would consider it over other homebuilders.

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

Risks and rewards

Even by normal stock market standards, I would suggest that both Synthomer and Taylor Wimpey are extraordinarily risky. In each case, though, I can see the potential for big returns if things go well.

Synthomer shares could rise sharply when its end markets recover. And if Taylor Wimpey makes it through the CMA investigation, investors could be receiving dividends for a long time to come.

I wouldn’t make a large part of my stocks and shares ISA either. But I think they could be interesting additions to consider in a diversified portfolio for investors prepared to tolerate risk.