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Cramer: 3 riskier stocks with big reward potential

Although Jim Cramer does what he can to avoid risk, that doesn't mean he shuns it altogether. On the contrary, he believes that every investor should have at least one higher risk stock in his or her portfolio.

Cramer calls these kinds of stocks "spec stocks" because they're only for speculation; he introduces them regularly on "Mad Money," usually on Fridays.

Cramer's commitment to speculation stems from his sincere belief that by doing thorough research or homework and then putting money to work strategically, investors can mitigate the risk and ultimately generate sizable returns.

However, because these investment can go south, he also says they should never total more than 20 percent or your holdings.

Intrigued?

If you're got the appetite, Cramer has many ideas. Following is a recap of 3 spec stock ideas recently introduced on "Mad Money." Again, these stocks pose somewhat higher risk, but Cramer thinks the odds are worth it.


Don Bayley | E+ | Getty Images

Globalstar

Cramer presented Globalstar as a speculative investment on July 1st when shares were trading around $4.20. In the case of Globalstar, Cramer viewed an investment as a bet on a favorable FCC ruling, which would allow the company to use electromagnetic spectrum for WiFi service.

If Cramer is right, and Globalstar gets a favorable ruling, "the company's spectrum alone would be worth several billion dollars," Cramer noted. That alone should buoy shares, but Cramer can also foresee a number of potential scenarios subsequently developing, all of which, he said would unlock even more value; (i.e. Globalstar partnering with other companies or perhaps becoming the object of a takeover.)

"If the FCC decides in Globalstar's favor, I think this stock could go from $4 to $7 over the course of the next year, for a potential 75% gain," Cramer said. "But again, because a regulator is involved, this is for speculation only."

GW Pharmaceuticals

On Friday June 20, when GW Pharmaceuticals was trading around $88.50, Cramer talked about this UK-based company, explaining that it was at the forefront of developing drugs from compounds found in marijuana plants.

Cramer expressed optimism about this stock in large part due to the promise of the company's drug called Epidiolex, "a cannabis based treatment for epilepsy and Dravet syndrome, a rare but severe form of pediatric epilepsy."

"Although it will be years before this drug can be approved, already there are peak sales forecasts of as much as $3.4 billion by 2024," Cramer said.

"And if you're worried about investing in medical marijuana, let me tell you that a bunch of firms have endorsed this stock, including Bank of America, Cowen, Piper Jaffray and Leerink Swann," Cramer added.

Just one caveat, "GW Pharma is not yet profitable, however, they do have a nice, consistent revenue stream," Cramer said. "Again, it's for speculation, only."

Vipshop

On Friday May 16, when Vipshop was trading around $159, Cramer profiled this e-tailer as one of only a few China-based companies that he was willing to bless as a "buy."

Largely, Cramer said as the Alibaba IPO grew closer, he thought money managers who actively sought growth would be more willing to entertain other China-based Internet retailers.

And Cramer felt few were facing the growth prospects of Vipshop, a company that sells branded merchandise on its websites at deep discounts, as much as 80 percent off.

"Their revenues rose by 126 percent year over year to $702 million, about 9 percent higher than what the analysts were expecting. And Vipshop's net income increased by 359 percent year over year," Cramer said.

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Read more from Mad Money with Jim Cramer
Don't let these stocks fool you
Unexpected yet effective stock strategy
Cramer's 4 point buy and sell system
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However, before you buy, be aware that "This is a Chinese Internet company, which means it's incredibly risky. That's why I'm only endorsing it for speculation, and I would wait for a pullback before you buy, given the enormous run it's had," Cramer said.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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