The efficient market hypothesis states that share prices reflect all information. Therefore, the basic assumption is that a given company’s share price trades at fair value. However, in an ocean of stocks, there are companies that the market fails to price correctly. Of course, when price discovery materializes, it results in a big rally that closes the valuation gap. I believe there are a few hidden-gem stocks to buy for potential multi-bagger returns.
Besides the fact that these stocks fly under the radar, growth stocks have still not recovered from the significant correction of 2022. This has contributed to a rather significant valuation gap in some sectors. I, however, believe that a dovish stance by the Fed on monetary policies will catalyze a rally in growth stocks. Therefore, it’s an excellent time to accumulate quality stocks.
Let’s discuss three hidden-gem stocks to buy that can catalyze any portfolio.
Leonardo DRS (DRS)
Leonardo DRS (NASDAQ:DRS) is an attractive name among hidden-gem stocks. I expect 5x returns from the stock over the next five years. This emerging player in the defense sector has trended 26% higher on a year-to-date basis in 2023. I think this uptrend is likely to be sustained, as business developments remain positive and favorable industry tailwinds back the sector.
For 2022, global defense spending will increase to $2.2 trillion. Spending grew for the eighth consecutive year. Considering rising geopolitical tensions, it’s likely that spending will continue to increase in the medium-term. Leonardo DRS is well-positioned to benefit as an emerging defense technology company.
The company ended 2022 with an order backlog of $4.3 billion. On a year-over-year basis, its backlog swelled by 49%. I think the company’s backlog will likely continue to improve, providing clear revenue and cash flow visibility. Further, with low leverage, Leonardo is positioned for aggressive organic and acquisition-driven growth.
Standard Chartered believes Bitcoin (BTC-USD) will touch $100,000 by 2024. With the crypto winter ending, there can be multi-bagger stories from crypto stocks. The commonly talked about names among Bitcoin miners include Marathon Digital (NASDAQ:MARA) and Riot Platforms (NASDAQ:RIOT). However, a relatively lesser-known name with 5x to 10x returns potential is Bitfarms (NASDAQ:BITF).
There are plenty of positives to touch on with Bitfarms. The company reported a Bitcoin mining capacity of 5 EH/s as of April. On a year-on-year basis, mining capacity increased by 52%. Additionally, the company ended April with impressive holdings of 465 Bitcoin. As Bitcoin trends higher, the value of the company’s digital asset portfolio will swell.
It’s also worth noting that Bitfarms has worked towards significant improvement in its credit metrics. As of February, the company reported $23 million in debt. The company’s total debt has declined by $118 million from its June 2022 peak. With robust financial flexibility, Bitfarms is positioned to pursue aggressive growth as the next bull market for cryptocurrencies is underway.
MakeMyTrip (NASDAQ:MMYT) is an attractive stock in the travel and tourism sector. The company is focused on India, which will likely be a big market in the coming years. With its recent revenue and earnings beat, MMYT stock seems poised for a reversal rally.
From an economic perspective, India will become a $5 trillion economy by 2026. Further, middle-class households are expected to swell to 300 million by 2030. In all probability, the outlook for growth in the Indian travel and tourism sector is going to be very favorable.
MakeMyTrip is among the market leaders in all travel and related services. The company’s revenue growth has been healthy, along with sustained improvement in the company’s operating profit.
It’s also worth noting that the company reported $449 million in cash and equivalents as of December 2022. With the company focused on organic and inorganic growth, MakeMyTrip has ample financial flexibility for opportunistic acquisitions.
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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.