There is no shortage of action in the penny stock space. Even in relatively subdued markets, selected penny stocks can deliver multibagger returns. Riot Platforms (NASDAQ:RIOT) was trading at $3.4 at the beginning of the year. The stock has delivered returns of 433% year-to-date. This is just one example of the massive upside in cheap penny stocks in the year’s first half.
Market sentiments have been impacted to some extent by the recent Fitch downgrade of U.S. credit rating. However, the impact is unlikely to be significant, and I remain bullish on the index after a meaningful correction in 2022.
Back to penny stocks, there are several undervalued penny stocks for smart investors. Amidst some nervousness in the markets, it’s time to accumulate for multibagger returns. It’s important to note that these penny stocks represent fundamentally strong stories and are worth holding for the long term.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) stock has surged by almost 50% in the last month. However, TLRY remains undervalued and is among the best penny stocks for smart investors.
The reason for the recent rally has been strong quarterly numbers. Tilray exceeded estimates on the revenue as well as earnings front, which was a positive surprise for the markets. I believe that the rally is likely to sustain with the company guiding for positive adjusted free cash flows in financial year 2024.
It’s worth noting that with the acquisition of brewing companies in the United States, Tilray has established a strong strategic infrastructure. On potential federal-level legalization of cannabis, the company will be positioned for aggressive growth.
From a financial perspective, Tilray ended the year with a strong liquidity buffer of $450 million. This provides ample flexibility to pursue organic and acquisition-driven growth.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) is another undervalued penny stock with strong fundamentals. KGC stock trades at a forward price-earnings ratio of 14.7 and offers an attractive dividend yield of 2.52%. I believe that the gold miner is poised for multibagger returns.
As for its fundamentals, there are two major reasons to like Kinross. First, the company reported a total liquidity buffer of $1.9 billion as of Q2 2023. With high financial flexibility, Kinross is positioned for potential acquisitions to compensate for asset sales in Russia last year.
Furthermore, Kinross reported an operating cash flow of $882 million for the first half of 2023. With annual OCF visibility of $1.7 billion, I expect robust dividend growth and value creation through share repurchases.
It’s worth noting that Kinross has already guided for stable production through 2025. Cash flows are likely to remain strong, considering the point that the outlook for gold is positive.
Bitfarms (NASDAQ:BITF) stock has skyrocketed by 300% year-to-date. That might make investors feel that the stock is overvalued. However, the upside was from deeply oversold levels, and BITF is worth accumulating for multibagger returns.
Standard Chartered expects that Bitcoin is likely to quadruple from current levels by the end of 2024. Assuming this scenario to hold true, I believe that BITF stock will be positioned for 5x returns in the next 18 months.
Specific to Bitfarms, the company has a strong balance sheet with low debt and a liquidity buffer of $41 million. This will allow Bitfarms to make aggressive investments toward mining capacity expansion.
The company has already boosted capacity to 5.3EH/s as of July. On a year-on-year basis, capacity has increased by 40%. Further, the company is a low-cost Bitcoin miner, and cash flows are likely to be robust if Bitcoin remains in an uptrend.
Nordic American Tankers (NAT)
Nordic American Tankers (NYSE:NAT) is another name among cheap penny stocks to buy. At a forward price-earnings ratio of 6.7, the stock looks attractive for a 100% rally in the next 12 to 24 months. Further, NAT stock offers a dividend yield of 13.76%.
As an overview, Nordic is a crude oil tanker company. In the last few quarters, the time charter equivalent rates for oil tankers have surged. This has translated into healthy EBITDA and cash flows.
For Q1 2023, Nordic reported an average time charter equivalent rate of $51,902. This was the highest TCE rate in the company’s 28-year-old history. With an operating cost per vessel per day of $8,000, margins have been robust, and this has translated into healthy dividend growth.
The International Monetary Fund expects global economic growth to remain steady in 2024. This is likely to support oil tanker rates at higher levels.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) is another cheap penny stock that has trended higher by 54% year-to-date. However, SLI stock remains undervalued and seems poised for a sustained rally. I believe that Standard Lithium is worth holding for the long-term, considering the impending lithium supply gap.
In terms of assets, the company has two flagship projects, Lanxess and the South West Arkansas Project. Both these projects have a combined after-tax net present value of $2.9 billion.
Further, the Bristol Lake project can add significantly to the long-term production profile. With Standard Lithium commanding a market valuation of $780 million, the stock is indeed undervalued.
Of course, the projects will commence production in 2025 and beyond. It’s important to note that the markets will discount the asset valuation. This would imply multibagger returns from current levels. I must add that equity dilution is on the cards for financing project development. However, I don’t see that as a concern considering the asset potential.
Polestar Automotive (PSNY)
After a deep correction in the last 12 months, Polestar Automotive’s (NASDAQ:PSNY) stock has been in a consolidation mode. I believe this is a good time to accumulate with the electric car maker poised for strong growth in the coming year.
To put things into perspective, Polestar delivered 51,491 cars in 2022, which was higher by 80% on a year-on-year basis. However, the company’s guidance for the year is subdued as the company expects to deliver 65,000 cars (mid-range of guidance). This is the key reason for the markets being disappointed.
However, this factor is discounted in the stock, and I believe that the next year will be positive on two counts. First, with the commencement of delivery of two new models in Q1 2024, delivery growth will be robust throughout the year.
Further, Polestar has taken measures to cut costs. This is likely to translate into a significant reduction in EBITDA-level losses. Additionally, operating leverage will boost margins. Therefore, the outlook is positive, and I believe that PSNY stock will be trading in double digits in the coming year.
Hydrofarm Holdings (HYFM)
With global food and water shortage concerns, there is an increasing focus on controlled environment agriculture. As a manufacturer of CEA equipment and supplies, Hydrofarm Holdings (NYSE:HYFM) seems attractive.
Hydrofarm believes that the global CEA market is likely to be worth $12 billion by 2026. Therefore, there is a big addressable market, and the company is still at an early growth stage. Another big catalyst is the potential federal-level legalization of cannabis. Besides the agriculture market, the company is also a supplier to the cannabis industry.
From a financial perspective, Hydrofarm expects to clock revenue of $300 million for the year with a moderately positive adjusted EBITDA. The important point to note is that the company has guided for positive free cash flows. That’s another potential catalyst for HYFM stock upside in the coming quarters.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
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.