- In order to find the best stocks under $10 to buy, you should find companies that also have strong fundamentals.
- Transocean (RIG): Its order backlog of $6.1 billion provides revenue visibility. Day rates are expected to increase to $400,000 and will boost EBITDA and cash flows.
- Kinross Gold (KGC) has production upside visibility with a strong cash buffer after sales of assets. Acquisition-driven growth is also likely for KGC.
- Hut 8 Mining (HUT): An increase in mining capacity will boost digital assets in the balance sheet. Also features a healthy EBITDA margin from operations.
- Cronos (CRON): Its strong top-line growth will likely sustain. Its healthy financial profile will also support aggressive growth in the U.S and international markets.
Since the meme stock euphoria in 2020, investors have been looking for low-priced stocks that can deliver multi-fold returns. While macro-economic conditions remain challenging, there are stocks under $10 that can be value creators.
As an investor, I would look at fundamentally strong names under $10 rather than purely speculative stocks. With multiple rate hikes on the cards in 2022, it might not be the best time to buy meme stocks. Speculation across risky asset classes is likely to decline on a relative basis.
Having said that, there are plenty of attractive businesses that have stocks trading at discounted valuations. This column will focus on stocks under $10 from four different sectors.
These names are likely to have positive industry tailwinds that support a sharp rally. To be realistic, I am not expecting multi-fold returns. However, I would be more than happy if these stocks can double in the next 9-12 months.
Let’s discuss the reasons that make these stocks under $10 attractive.
|HUT||Hut 8 Mining||$3.48|
With Brent oil trading above $100 per barrel, Transocean (NYSE:RIG) is among my top-picks for stocks under $10. Offshore drilling has gained traction and Transocean has a strong order backlog of $6.1 billion. This provides the company with clear revenue and cash flow visibility.
For Q1 2022, Transocean reported $586 million in revenue and $163 million in adjusted EBITDA. Margin expansion is a key reason to be bullish on RIG stock.
In the conference call, the company’s CEO indicated that new orders can potentially come at a day-rate of above $400,000. This will boost the company’s EBITDA margin and operating cash flows.
It’s worth noting that Transocean has 39 floaters that focus on ultra-deep water and harsh environment drilling. Its modern fleet, with an average age of 11 years, is well-positioned to secure long-term contracts.
In addition to operating rigs, the company reported 12 cold stacked rigs as of February 2022. With oil sustaining at higher levels, these rigs are likely to be operational in the next few quarters. This will imply top-line and EBITDA growth.
Overall, RIG stock has trended higher by 32% year-to-date. Considering the day-rate upside visibility, the stock is likely to double from current levels in the next few quarters.
Kinross Gold (KGC)
Even with the prospects of multiple rate hikes in 2022, gold has remained resilient. One reason is that real interest rates will still remain negative. Another reason is the geo-political risk premium being discounted in gold prices.
Kinross Gold (NYSE:KGC) seems like an attractive pick after under-performing in the last 12-months. I would not be surprised if KGC stock doubles from current levels of $4.96.
The company has recently been on an asset selling spree. Kinross sold Russian assets for a consideration of $680 million. The company also announced the sale of Chirano mine in Ghana for $225 million.
As of December 2021, Kinross already had a total liquidity buffer of $1.9 billion. The asset sales ensure that there is ample financial flexibility to ramp-up production in core assets. Additionally, there is scope for inorganic growth after disposal of Russian assets due to geo-political reasons.
Kinross had also guided for 28% production growth in 2022. Additionally, the company expects at least 2.5 million attributable ounces of gold production over the rest of the decade. If gold continues to trade around $2,000 an ounce, Kinross has strong cash flow visibility.
Overall, at a forward price-to-earnings ratio of 11.2x and a dividend yield of 2.38%, KGC stock is among the top stocks under $10 to consider.
Hut 8 Mining (HUT)
It seems that Bitcoin (BTC-USD) is in a strong consolidation zone around the $40,000 level. Considering the rallies in the past, a fresh break-out can take Bitcoin above previous highs.
I would, therefore, be willing to take a risky bet on Bitcoin mining stocks. Hut 8 Mining (NASDAQ:HUT) stock has traded at a 52-week high of $16.6. The stock has plunged to $4. It seems that the selling is overdone and HUT stock is positioned to double in the next few quarters.
For March 2022, Hut 8 mined 345 Bitcoin with a capacity of 2.54EH/s. The company also has reserves of 6,460 Bitcoin as of March 2022. Further, Hut 8 expects to increase mining capacity to 3.55EH/s by Q2 2022.
For 2021, Hut 8 reported revenue of $173.8 million and an adjusted EBITDA of $96.6 million. This implies an EBITDA margin of 55.6%. Once Bitcoin trends higher, Hut 8 seems positioned for healthy growth in EBITDA and cash flows.
Hut 8 also ended December 2021 with $464 million in cash and digital assets. This provides the company with ample financial flexibility to boost capacity beyond Q2 2022.
Cronos (NASDAQ:CRON) stock has been depressed like most cannabis stocks as the markets discount a slower growth trajectory for the industry.
However, after a correction of nearly 60% in 12-months, CRON stock looks attractive. In particular, with more states in the U.S. legalizing recreational cannabis. A Federal level legalization of cannabis is also an impending catalyst.
For 2021, Cronos reported revenue growth of 59% to $74.4 million. While adjusted EBITDA losses widened, Cronos has increased its presence in the United States and Israel. Europe is another big growth market for Cronos in the coming years. As the addressable market expands, the company is positioned to maintain a robust growth trajectory.
It’s also worth noting that Cronos reported cash and equivalents of $887 million for 2021. With Altria (NYSE:MO) holding 45% stake in Cronos, the company has a strong financial backing.
Considering the financial flexibility and a strong portfolio of brands, CRON stock looks attractive. A rally from oversold levels seems likely.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.