If you get a windfall of cash or happen to fall into some money unexpectedly, it might be tempting to spend that on something you normally wouldn't -- like a high-risk investment. After all, if you lose the money, you are no worse off than you were before, and if you guess right, the payoff could be significant. But there is an opportunity cost with every decision. Even if you can afford to lose the money, you could miss out on better opportunities.
And that's why even if someone gave me free money to invest, I still wouldn't squander it on risky stocks like Ocugen (OCGN) or TAL Education (TAL -1.89%). These stocks have already generated significant losses for investors this year and are simply bad buys right now.
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1. Ocugen
Ocugen's stock price has soared by more than 260% in 2021, while the S&P 500 is up just 17%. The increase has been fueled by the hope that Covaxin, the COVID-19 vaccine candidate Ocugen is co-developing with India's Bharat Biotech, will lead to significant revenue for the healthcare company. The good news is that results look promising -- Ocugen reported in July that phase 3 results showed Covaxin to be over 93% effective in preventing severely symptomatic cases of COVID-19.
But even as cases of the delta variant are rising, meaning there could still be a need for another vaccine in the U.S., it still may not mean much market share for Ocugen. Under its agreement with Bharat, Ocugen receives 45% of the profits earned in the U.S. and Canadian markets. In those countries, vaccination rates are among the highest in the world -- more than 50% of people have received at least one dose of a vaccine already. And in the U.S., the company is no longer seeking an Emergency Use Authorization from the Food and Drug Administration (FDA) because the agency suggested it pursue a biologics license application instead. That's a longer process that could mean Covaxin isn't available for several months.
Buying a stock based on a trend like COVID-19 can be risky because things are changing rapidly. Although the U.S. economy has been opening back up in many places, the threat of more restrictions looms as case numbers rise. It's difficult to predict just how long this pandemic will end up lasting. And amid that uncertainty, investors of Ocugen have been quick to dump the stock. Its shares are down more than 40% in the past three months, while the S&P 500 has risen more than 4% during that time.
The company generated no revenue during the first three months of 2021, and investors still holding the stock are likely banking on the success of its vaccine candidate. Ocugen doesn't have much in its pipeline, and while Covaxin may generate some revenue for the company if it gets the OK from health officials in Canada or the U.S. (which is by no means a guarantee), it's just not a great place to invest your money right now. There are better, safer options for you to hold over the long term.
2. TAL Education
Chinese-based tutoring company TAL Education looked like a promising investment at one point, with 2021 revenue of $4.5 billion coming in 37% higher than the previous year.
But despite that impressive growth, investing in this business is an even riskier prospect than buying shares of Ocugen. And that's because the Chinese government is cracking down hard on tutoring companies in an effort to bring down costs for parents. In July, Reuters reported that the country is going to ban for-profit tutoring on "core school subjects."
While many investors were preparing for some restrictions coming down the pike, such heavy-handed ones were a shock. TAL Education's shares are now down an incredible 90% in just three months. Brokerages have been slashing their price targets for the stock to less than $9 (previously, some had expectations it would soar as high as $85).
Presumably, TAL Education will still be able to make some profit on non-core subjects, but even in the best-case scenario, the total will amount to a fraction of what it generated before. Analysts from Citigroup say that for leading companies in the industry, the restrictions could represent a 70% decline in revenue for kindergarten-to-12th-grade education (which is TAL Education's main area of focus).
TAL Education looks to have been caught off guard by these recent developments, so much so that it has cancelled the scheduled release of its first-quarter earnings report that was previously set for Aug. 5. The stock is an incredibly risky investment right now, and it's just not worth taking a chance on -- even with free money.
