For most of 2021, there was a buying frenzy for meme stocks and penny stocks. It seemed as if anything that investors touched turned into gold. Sentiments have reversed dramatically in the first two quarters of 2022. Growth stocks and penny stocks have been severely punished by the markets.
While economic headwinds continue to affect market sentiments, there are several penny stocks that seem grossly oversold. I believe that some exposure can be considered to these stocks.
It’s worth noting that there are two classifications of penny stocks. Some are purely speculative. On the other hand, there are stocks of businesses that have reasonable fundamentals. There is a case for these penny stocks to be long-term value creators.
My focus is on penny stocks that are worth holding for the next few years. While some may give multi-fold returns, the healthy stocks among these picks will likely still provide some growth at the least.
| RIG | Transocean | $3.47 |
| TLRY | Tilray | $3.21 |
| RIOT | Riot Blockchain | $4.60 |
| KGC | Kinross Gold | $4.18 |
| ARVL | Arrival | $1.67 |
| HL | Hecla Mining | $4.23 |
| MULN | Mullen Automotive | $1.60 |
Transocean (RIG)
Transocean (NYSE:RIG) is a quality name among penny stocks to consider in the energy space. The offshore drilling rig services provider seems positioned for growth and an improved balance sheet.
As of June 2022, Transocean reported an order backlog of $6.1 billion. The company’s order inflow has been accelerating.
With high day rates likely for new orders, Transocean is positioned for revenue upside and EBITDA margin expansion. Revenue growth is also likely to come from idle rigs that can potentially be operational as market conditions improve.
Transocean has a liquidity buffer of $2.6 billion. The company also plans to reduce its balance sheet debt in the next few years. With improvement in overall credit healthy, RIG stock looks attractive.
Tilray (TLRY)
Tilray (NASDAQ:TLRY) is among few players that seem positioned to survive and create value in the long term.
Many other cannabis companies have continued to struggle as regulatory headwinds affect growth potential. There has been some consolidation in the industry.
With weak industry sentiments coupled with a broad market correction, TLRY stock has already declined by 56% year to date. For risk-taking investors, some exposure can be considered at current levels.
For Q3 2022, Tilray reported revenue growth of 23% to $152 million. For the same period, the company reported a positive adjusted EBITDA. While the numbers seem positive, growth is likely to accelerate. Tilray expects to clock revenue of $4.0 billion by 2024.
It’s important to note that the company has a strong presence in recreational as well as medicinal cannabis. With evidence-backed drugs, it’s likely that the medicinal cannabis segment will also gain traction.
The impending federal-level legalization of cannabis in the United States is also a potential catalyst. Overall, TLRY stock looks attractive among penny stocks for possible multi-fold returns over the next few years.
Riot Blockchain
Riot Blockchain (NASDAQ:RIOT) is another high-risk high-reward name among penny stocks. With Bitcoin (BTC-USD), tumbling, there seems to be no end to the correction for Bitcoin miners.
Assuming a scenario where Bitcoin is likely to make a comeback in the next 12-24 months, RIOT stock can deliver multi-fold returns. If it’s end-game for cryptocurrencies, the stock will continue to sink.
However, I believe that cryptocurrencies will survive as an asset class. Even if the current bear market eliminates a majority of the altcoin.
Specific to Riot, the company is positioned for strong growth in mining capacity in the next few quarters. For May 2022, the company reported hashing capacity of 4.6EH/s. The company expects to ramp up capacity to 12.6EH/s by January 2023.
Of course, revenue will be hit with Bitcoin struggling below $20,000. The company’s margin compression is also likely to be significant. However, Riot’s digital assets will swell in the coming quarters. Once there is a reversal in Bitcoin, the financial flexibility will be robust.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) has been an under-performer with a downside of 26% year to date.
However, at a forward price-to-earnings ratio of 10.3, the stock looks attractive from a medium to long-term horizon.
In the recent past, Kinross has sold gold assets in Russia and Ghana. On the positive side, assets in regions with high geopolitical tensions have been disposed of. This has however hurt the company’s production guidance for 2022 and 2023.
I am positive on KGC at current levels for two reasons. First, even with lower production, Kinross is positioned to deliver positive free cash flows. Second, Kinross has $1.7 billion in cash and equivalents. There is ample financial flexibility to pursue organic and acquisition-driven growth.
It’s worth noting that gold has remained resilient above $1,800 an ounce even with aggressive rate hikes. With real interest rates remaining negative coupled with the geopolitical risk premium, the outlook for gold is positive.
Arrival (ARVL)
In the commercial electric vehicle segment, Arrival (NASDAQ:ARVL) looks attractive among penny stocks.
ARVL stock has been on a sustained downturn with the execution of plans well behind the timeline.
However, there are potential developments in 2022 that can serve as a catalyst for the stock. As an example, the company has already commenced first phase of bus trials. Recently, the company also partnered with Enel X to commence bus trials in Italy.
It’s also worth noting that the company has an order backlog of 143,000 vehicles. This includes an order for electric delivery vans from United Parcel Services (NYSE:UPS).
Arrival reported cash and equivalents of $735 million as of March. There is ample financial flexibility for investments and to sustain the cash burn. Overall, there is a big global addressable market for commercial electric vehicles. With the right execution, ARVL stock can be a value creator.
Hecla Mining (HL)
Among precious metal penny stocks, Hecla Mining (NYSE:HL) seems like another attractive name to consider.
As an overview, Hecla is a diversified miner with gold and silver assets. The company is the largest miner of silver in the United States.
HL stock has declined from 52-week highs of $8.96 to current levels of $4.35. This seems like a good accumulation opportunity. With inflation, recession and geopolitical concerns, precious metals are likely to remain firm.
For Q1 2022, Hecla reported revenue of $186.5 million. For the same period, the company reported free cash flow of $16.4 million. With sustained FCF, the company has a healthy balance sheet and a total liquidity buffer of $445 million.
It’s also worth noting that besides precious metals, Hecla Mining has zinc and copper assets. The company claims to have the third-largest undeveloped copper project in the U.S. Even if the focus is on precious metals, the sale of non-core assets will boost the company’s financial flexibility.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) is another high-risk name among penny stocks that seems attractive.
In the last six months, MULN stock has plunged by 72%. However, it’s worth noting that the stock is higher by 52% over a one-month period.
In March 2022, the company’s CEO indicated that Mullen struck a deal for electric vans with a Fortune 500 customer. With further details on this due soon, there is an impending upside catalyst for the MULN stock.
Mullen has also announced positive results from its solid-state polymer battery tests. Further development on this front can also send the stock soaring. It’s expected that the battery can deliver over 600 miles of range on a full charge for the Mullen FIVE EV Crossover.
Of course, there are risks to the thesis. Hindenburg Research has been skeptical about the positive developments. However, if things go right, returns can be multi-folds. Therefore, exposure to the stock is a risk worth taking.
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.
