Here are two that could be a good fit for my portfolio:

Red Cat Holdings

This Puerto Rico-based company produces drone products, technologies and services.

Over the last decade, drones have become increasingly noticeable at parks, on beaches and in other open-space areas.

Aside from the hobbyist drone market, the technology is also being adopted in a range of industries, from videography to weather monitoring, firefighting and even delivery services.

Red Cat Holdings (NASDAQ:RCAT) offers investors a chance to get a piece of the drone market, valued at $100bn in 2020 and growing at 20.5% annually.

Most eye-catching is the company’s ‘drone box’ technology, which is the equivalent of the ‘black box’ on an aeroplane. By tracking drone flight data, the technology allows operators in this nascent sector to comply with growing regulatory demands and more easily qualify for drone insurance. 

Then there is Rotor Riot, which is Red Cat Holding’s retail and media arm, which pumps out slick YouTube videos for its 200,000 subscribers, driving customers to its online drone store, rotorriot.com.

Red Cat Holdings is a tiny fish in this sector, and its lunch could end up being eaten by behemoths like Chinese drone manufacturers DJI or Yuneec.

But with year-on-year revenue growth in the most recent quarter up over 300%, from $428,000 to $1.9m, Red Cat Holdings is so far gobbling up market share in this booming sector.

Trading at $2, down over 8% year to date, I would be happy to buy the dip on Red Cat Holdings, which is priced at a reasonable multiple of 12 times trailing sales.

Clovis Oncology 

This small-cap pharmaceutical company based in Colorado has seen its stock price rally by over 100% in June, from $0.66 to $1.49, following the publication of positive interim phase 1/2 clinical trial results for one of its patented drugs.

Still, plucky investors can talk about ‘buying the dip’ on Clovis Oncology (NASDAQ:CLVS), as the risk-off sentiment triggered by rising interest rates and high inflation has the company’s share price trading at a 48% discount compared with the beginning of 2022.

Clovis Oncology has two main products:

• Rucaparib, sold under the brand name Rubraca, is a pill for certain types of ovarian and prostate cancers that has been approved for use in the UK, the EU and the US.
• FAP-2286, a radioactive substance that attaches itself to solid tumours for imaging and therapeutic purposes. FAP-2286 has not been approved for use anywhere yet.

On 14 June, Clovis Oncology reported positive results from its phase 1 trial of FAP-2286, leading to a massive jump in its share price.

Further news from the company’s trial of FAP-2286 will likely cause similarly large swings in the price – and new investors could be left with startling losses if the drug’s efficacy is called into question by unfavourable findings.

So far, however, the trial is going well and none of the nine patients given FAP-2286 for solid tumours have had to abandon or cut back their dosage due to side effects, while one of the patients has exhibited a partial response to the radiotherapy drug.

What’s the story?

So what does Clovis Oncology do? Well it’s an established US-based company that develops and commercialises cancer treatments internationally. Currently Clovis shares trade around $6.88, but had traded up to $100 back in 2015. This element is one reason why some retail investors think it could be similar to GameStop due to the ‘short interest’. 

This short interest (that profits if the stock falls) has grown since 2017 due to poor financial performance. This was mostly due to high research and development costs of new treatments, without having the revenue to show for it. For example, in 2018 the business lost $370k, up from a loss of $340k in 2017. Research and development costs for 2018 alone were $231k when revenue was only $95k. 

As a result, Clovis shares have tumbled down to the levels they sit at currently. We might wonder why a business of this size can command a market valuation of $718m. From what I can see, this is mostly based on speculation about future approvals for cancer treatments. Last Friday, Clovis shares rallied 48% after positive news from trials of it’s ovarian cancer drug called Rubraca.

Could Clovis shares skyrocket?

There are several reasons why Clovis shares could mirror the explosion seen in GameStop shares earlier this year. To begin with, short interest sits at 41%, which is high. The implications of this are that if the share price starts to rally, people who shorted the stock will need to buy back shares to close out their positions. This will push Clovis shares even higher. This was the same situation that happened with GameStop.

Further, Clovis is gaining more prominence in internet chat sites, just like GameStop. If this continues to increase, it will be on the radar of more investors. This in turn should lead to more people buying the stock. Even if they don’t completely understand the business, the fear of missing out can be a very strong pull!

But am I going to buy Clovis shares right now? No. The share could rocket higher if more positive news on treatments gets released (and I hope that’s the case for the sake of the many people that could benefit from its products). But this has the feeling of an over-inflated penny stock to me. It feels very ‘boom or bust’. As the stock is also still a fairly small company, the price can easily see erratic moves as there aren’t a large amount of shares in circulation.

If I was a high-risk investor then maybe I would buy Clovis shares, as there’s a small chance that they might make high returns. Instead though, I’ll follow The Motley Fool strategy and look to more established, profitable companies to invest in. That way I hope to build my wealth gradually over time without so many scary booms and busts to have to deal with!