It's been a great year to be a shareholder in poorly rated, highly volatile stocks. In my opinion, that means the time is ripe to get out of said investments -- or at least think twice before putting new money into them. If any of the five stocks I'm highlighting below are on your watchlist, I suggest investing with eyes wide open, and a thorough understanding of the risks involved.
Here's a look at my candidates, what they do, and how far they've climbed in 2012. And if super-growth investing is your game, I'll finish up by offering access to a stock that we believe is the next great American growth story.
National Bank of Greece
Source: Fool.com. YTD = year to date.
The first two stocks on my list come from the epicenter of the European debt crisis. I'll admit that when it comes to DryShips, I've done some poor analysis in the past. I called the stock a "perfect short" in August, and failed to appreciate the fact that the company could be a serious bargain based on its drilling interests through spinoff Ocean Rig.
That being said, the stock is up almost 70% in just the last eight trading days. I wouldn't short the stock, as it could come out of its current situation a winner, but there are three big red flags that worry me. First, I'm not a huge fan of management at the company. CEO George Economou has already let it be known that he thinks Americans are the dumbest investors around. Second, the stock's immediate future is likely tied -- fairly or not -- to the constantly shifting winds in Greece. And finally, DryShips is carrying a massive amount of debt -- $4.5 billion at last count -- versus just $400 million in cash on hand.
The National Bank of Greece, on the other hand, has had an even more meteoric rise -- climbing almost 120% since Jan. 10. That's great news for investors, but they need to consider what they're investing in: a financial institution that gives out loans to a government that can't honor its obligations, and a people that have a terrible record of fiscal responsibility.
Does the market know something I don't?
When it comes to pharmaceutical companies, large jumps in share price are commonplace, as the golden touch of an FDA approval usually sends shares skyrocketing. But in the case of Affymax, which develops products to treat serious cases of anemia, the recent 64% hike in its shares didn't come on the approval of a new drug. In fact, the only news I could find associated with the company is the promotion of Cynthia Smith to vice president of market access and commercial development. Either the market knows something I don't, or it's acting very irrationally.
And speaking of acting irrationally, how about Corinthian Colleges' 130% spike since the new year? I understand that earnings came in better than expected, but consider that the report still revealed a 14% decline in revenue, a 10% drop in enrollment, and an 82% drop in adjusted earnings per share. Though I've softened my stance on for-profit education, my research tells me that Corinthian is the worst of the bunch.
The Facebook effect
Finally, we have Zynga, the social-gaming company that benefited the most from Facebook's IPO filing. While the numbers revealed in that filing have impressed some investors, our very own Tim Beyers is unconvinced. He believes Zynga to be a faker -- primarily because it lacks innovation, often copying others' gaming efforts -- with unsustainable competitive advantages and a lack of truly excellent management. I'm with Tim on this one; you'd better be sure you know what you're getting into before putting your money here.
Where the great growth stories truly are
But don't worry, I'm not here just to be pessimistic. I believe there are plenty of great growth stories out there. Our highly acclaimed Rule Breakers newsletter has put together a special free report -- Discover the Next Rule-Breaking Multibagger -- that highlights what it thinks is the best opportunity out there right now. To find out which company that is, get your copy of the report today, absolutely free!
Fool contributor Brian Stoffel has no positions in any of the companies mentioned. You can follow him on Twitter at @TMFStoffel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.