Investing in penny stocks does bring an element of nervousness. The stock price action can be unpredictable, particularly if we look at some purely speculative penny stocks. However, if we dive deeper into the sea of stocks, there are precious pearls, which I would prefer to classify as no-brainer penny stocks.
Typically, these penny stocks represent companies that have reasonable business fundamentals. The business operating track record indicates that exposure to these stocks is a risk worth considering. In the next few years, these penny stocks can upgrade to mid-cap stocks.
Amidst this bullish view, investors need to have a genuine investment horizon. It’s unlikely that we will soon witness the penny stock euphoria of 2021. Although the expectations on ROI need to be toned down, these no-brainer penny stocks will have multibagger potential over the next two to three years.
Let’s discuss the reasons that make these stocks attractive.
With the world facing an energy crisis, Transocean (NYSE:RIG) is among the top no-brainer penny stocks to consider. While RIG stock has trended higher by 35% for year-to-date 2022, it remains massively undervalued.
The offshore drilling services rig provider is already benefiting from higher oil prices. Currently, the company has 28 ultra-deep-water floaters and ten harsh environment floaters. The company’s order backlog swelled by $1.6 billion in the last quarter to $7.3 billion. This provides clear cash flow visibility.
A major stock upside catalyst for 2023 is a sustained improvement in EBITDA margin. New contracts are coming at a higher day rate, and the positive impact will be seen in the coming quarters. Transocean also has 12 cold-stacked rigs. These rigs will provide incremental cash flow visibility if market conditions continue to improve.
With strong cash flows, Transocean is also targeting deleveraging. Improvement in credit metrics is another catalyst for stock upside.
Tilray Brands (TLRY)
With expectations of federal-level legalization of cannabis, Tilray Brands (NASDAQ:TLRY) stock is likely to skyrocket. I would not think twice before adding this cannabis stock to the portfolio. Positive business development is a reason to be bullish besides the regulatory catalyst.
In Canada, Tilray has a leading market share in the recreational cannabis segment. Further, Tilray has a market share of 20% in Germany in the medicinal cannabis business. With Germany’s recent legalization of cannabis for recreational use, there is ample scope for expansion.
Tilray has also built a strong strategic infrastructure in the United States by acquiring brewing companies. With strong financial flexibility, the company is positioned for aggressive expansion on legalization.
Tilray expects all its operating business units to be free cash flow positive in the current financial year. The company has also addressed the challenge of cash burn with cost-cutting and operating leverage. Overall, TLRY stock is positioned for multibagger returns in the next few years.
Kinross Gold (KGC)
Gold has gained some momentum, with inflation easing on a relative basis. It’s a good time to buy gold mining stocks for the long term. Kinross Gold (NYSE:KGC) looks attractive at a forward price-earnings ratio of 18.2. Additionally, the penny stock has a dividend yield of 2.9%.
Recently, Kinross reported strong Q3 2022 results. The company’s operating cash flow was $173.2 million, and Kinross closed the quarter with a total liquidity buffer of $2 billion.
Positive free cash flows and a healthy balance sheet will ensure dividends sustain, and the company achieves the share repurchase target. Furthermore, there is flexibility for acquiring assets to boost growth.
Kinross has guided for stable gold production of approximately two million ounces annually through 2025. Even with stable production, there is visibility for dividend growth if gold trends are higher than current levels.
With factors of geopolitical tension, inflation and growth uncertainty, allocation to gold is important. KGC stock is an attractive proxy among smaller gold mining companies.
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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.