There is no debate on the point that finding the best penny stocks to buy is a high-risk proposition.
This is particularly true for purely speculative penny stocks to buy. At the same time, within the universe of penny stocks, there are some emerging companies with an attractive business.
If these companies deliver healthy numbers on a consistent basis, value creation can be immense.
Therefore, as an investor seeking to diversify my portfolio, I would consider exposure to some high growth penny stocks. Based on industry or company specific developments, the best penny stocks to buy can deliver 10x returns in the next five years.
This is a conservative estimate and the bull market of 2021 show investors that multibagger returns are likely at the blink of an eye.
Of course, all ideas might not fire. However, even if 50% of penny stocks surge, the overall impact on the portfolio will be significant.
I must also mention that a five-year horizon seems big for penny stocks. My idea would be to analyse business developments on a quarterly basis. If there is steady progress, the stock can be retained.
Let’s discuss the penny stocks to buy for multibagger returns in the coming years.
Solid Power (SLDP)
I believe that 10x or 20x returns in Solid Power (NASDAQ:SLDP) would not be a surprise in the next few years. The assumption is that the company achieves success in commercialization of solid-state batteries.
The company’s research and development efforts are backed by an automotive powerhouse. BMW (OTCMKTS:BMWYY) has signed an agreement with Solid Power to pursue parallel research and development for solid-state batteries.
During the year, Solid Power will be making EV cells available to automotive partners for valuation testing. The automotive qualification process an important catalyst for SLDP stock.
From a financial perspective, Solid Power ended 2022 with cash and equivalents of $496 million.
There is ample financial flexibility to pursue aggressive investment in research and development activities. Further, I don’t see any potential equity dilution in the next 18 months, making this one of the best penny stocks to take a chance on.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) stock is among the deeply undervalued penny stocks to buy at current levels. Given the fundamentals, I believe that the worst of the correction might be over for CRON stock.
From an industry perspective, it’s expected that U.S. cannabis sales will hit $71 billion in 2030. This is assuming a scenario of no federal reforms. Therefore, the addressable market is significant with ample headroom for growth.
It’s also worth noting that Cronos reported 23% year-on-year growth in revenue for 2022. Growth has been robust and it’s associated with narrowing of EBITDA level losses.
With cost-cutting measures and operating leverage, losses are likely to decline further.
Another point to note is that Cronos ended 2022 with cash and equivalents of $878 million. The company’s financial flexibility is high for aggressive organic and inorganic growth.
With these positives, CRON stock is among the top penny stocks to consider.
With crypto winter ending, there are several attractive investment opportunities in crypto stocks. If Bitcoin (BTC-USD) continues to trend higher, there will be multibagger stories among Bitcoin miners.
Bitfarms (NASDAQ:BITF) stock has skyrocketed by 160% for the first four months of 2023. I believe that the stock remains deeply undervalued from a long-term perspective.
The first positive is that Bitfarms produced Bitcoin at an average direct cost of $10,000 in 2022. With the cryptocurrency trending higher, the low-cost producer is expected to deliver robust EBITDA margin in 2023.
Further, Bitfarms reported mining capacity of 5EH/s as of April. On a year-on-year basis, mining capacity increased by 52%. Given the financial flexibility and the upside in Bitcoin, I expect capacity growth to sustain.
As of February 2023, Bitfarms reported total debt of $23 million. The company has reduced debt by 86% since June 2022.
With a strong balance sheet, the company is positioned to benefit from the next crypto bull market, making it one of the more interesting penny stocks to buy.
AppHarvest (NASDAQ:APPH) has disappointed investors and the stock has corrected by 85% in the last year. The reasons include cash burn and equity dilution.
However, there has been some encouraging business development and I would consider some exposure to the penny stock.
As an overview, AppHarvest is an agriculture technology company. The company claims to have some of the world’s largest indoor farms.
This farming method has gained significance as it requires 90% less water and deliver 30 times higher yield than traditional farming methods.
From a growth perspective, the following point is worth noting – AppHarvest quadrupled the total farm area to 165 acres in 2022. Most of the expansion came towards the end of the year. Therefore, the impact of the big expansion will be seen in 2023 and 2024.
Recently, AppHarvest raised $46 million through an equity offering. The financing will ensure that the company can continue to invest in the next 12-18 months towards 100% utilization of 165 acres under farming.
Waterdrop (NYSE:WDH) is an interesting story from the insurance sector in China. WDH stock has surged by 88% in the last 12 months. However, valuations remain attractive with the stock trading at a forward price-earnings ratio of 13.4.
As an overview, Waterdrop is the largest independent third-party insurance platform in China. After the pandemic, there is a strong case for sped up adoption of various insurances. This is likely to be a growth catalyst for Waterdrop.
As of December 2022, the company offered 775 insurance products on its platform. On a quarter-on-quarter basis, the number of insurance products increased by 239.
With a broader product offering, the premium generated through the platform will continue to swell.
Waterdrop closed 2022 with cash and equivalents of $537 million. This provides the company with ample flexibility to invest in platform development and invest in digital business innovation.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) has been trending higher with a rally of 56% in the last six months. At just over $5, the stock looks poised for multibagger returns in the coming years.
An obvious reason to be bullish on KGC stock is the rally in gold, the precious metal trades near $2,050 an ounce.
With factors of inflation, recession, and geopolitical tensions, gold is likely to remain in an uptrend. A potential dovish stance by the fed will serve as another catalyst for gold price upside.
Specific to Kinross Gold, the company has strong fundamentals. The company ended 2022 with a total liquidity buffer of $1.8 billion. Last year, the company returned $455 million to shareholders.
With gold trending higher, cash flows are likely to swell and this will translate into healthy dividend growth.
Kinross has also guided for production above two million ounces annually through 2025. Even assuming stable production, cash flow upside is likely on higher realized gold price. Kinross was forced to sell Russian assets in 2022 because of geopolitical factors. I would not be surprised if the company pursues acquisitions to push production growth.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock is another potential high return penny stock to buy and hold. If business developments remain positive, I expect PSNY stock to deliver 10x returns in the next five years.
Polestar is still at an early growth stage as an EV company. However, there are two big positives to note. First, the company is already present in 27 countries globally. This gives access to a big addressable market.
Polestar has a strong pipeline of new models. They launched Polestar 4 this year and Polestar 5 is due for launch in 2024. Polestar 6 will be launched in 2026. The launch of new models will support healthy deliveries growth.
Of course, cash burn is a concern and Polestar is likely to raise funds in 2023. However, I would focus on deliveries growth at this stage. With operating leverage, EBITDA losses will narrow.
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.