These 2 Stocks Carry a Lot of Risk, But Their Upside Is Huge

These two stocks have some significant risks, but they trade so cheaply that they offer unbelievable capital gains potential.

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When it comes to investing, there is no statement with more truth than “no risk, no reward.” The entire reason investors expect a return on their investment, whether through interest, dividends, or capital gains, is that there is always the risk you could lose your money when you buy stocks.

Furthermore, given how efficient markets are these days and how quickly information can reach the masses, in general, when a company, region, or industry has a certain amount of risk, investors are well aware, and the investment gets priced accordingly.

This is the entire balance of investing in the stock market. If you’re unwilling to take significant risks, you’ll almost certainly never see a major return on one of your investments.

Conversely, if you’re investing consistently for massive, short-term gains, you’re going to have to take on huge risks and will likely end up losing all of your money.

Therefore, the goal for investors should be to find stocks that they believe either have less risk than the market thinks or more return potential, given how they’re priced.

And if you’re looking for top stocks to buy now, here are two with significant risks to consider but also offer major potential for capital gains that should outweigh these risks.

One of the cheapest stocks on the TSX that investors think has a tonne of risk

One of the cheapest stocks on the market, and therefore a stock that the market thinks has a tonne of risk, is Corus Entertainment (TSX:CJR.B).

Corus owns several TV channels and radio stations across the country. However, the majority of its income is from the TV segment through either advertisements on cable TV or through subscriptions to specialty channels or its streaming services.

This is an industry that’s seen a tonne of change over the past few years and is now seeing lower advertising revenue as a result of a worsening economic environment.

Therefore, given Corus’s more recent history facing significant headwinds and the cuts to its dividend that it’s had to make in the past, the stock is priced extremely cheap, as investors are concerned the stock still has a tonne of risk.

However, although lower advertising revenue is certainly concerning in this economic environment, the drop in ad sales has appeared to have peaked, meaning this could be as low as Corus’s stock price falls.

Furthermore, with the stock trading at just over $1 a share, it has a market cap of just $200 million. Meanwhile, just two months ago, Corus sold off an animation studio that was responsible for generating only 2% of its revenue for just shy of $150 million. So, the fact that the entire company trades just over $200 million today makes it incredibly cheap.

It’s also worth pointing out that even with Corus being impacted this year, over the next 12 months, it’s still expected to earn more than $150 million in free cash flow. And prior to these headwinds, the stock was consistently generating more than $200 million in free cash flow every single year.

Therefore, although Corus certainly has some risks, the fact that it offers a yield of more than 11.6% and has a market cap of just over $200 million makes it incredibly cheap and gives it huge upside potential once it can recover.

A top recovery stock to buy now

In addition to Corus, Cineplex (TSX:CGX) is another ultra-cheap stock to buy today, despite some of the risks it faces.

Cineplex’s stock price and its operations have yet to fully recover from the pandemic, making it an intriguing stock to buy today. And while 2023 looked like it could finally be the year that Cineplex recovered, strikes south of the border have increased the risk of buying Cineplex today.

With these strikes expected to be resolved as early as this week (the writers already tentatively reached an agreement this morning), though, Cineplex stock could start to see a massive rally considering all the upside in the stock. In fact, right now, Cineplex trades at a forward price-to-earnings ratio of just 7.1 times.

Therefore, while there is still some risk with Cineplex stock today, it’s so cheap and is recovering so quickly that it’s one of the top stocks to buy now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has positions in Corus Entertainment. The Motley Fool recommends Cineplex. The Motley Fool has a disclosure policy.

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