Penny stocks are well known for some exciting price action. It’s therefore not surprising that penny stocks are the favourites for short term traders and speculators. In 2021, penny stock investors made a killing with several stocks delivering multibagger returns in a matter of months.
However, not all penny stocks are purely speculative. There are penny stocks that represent companies that are worth holding for the long term. This column focuses on penny stocks that can deliver multibagger returns in the next five years.
Of course, investors need to look at the business progress on a quarterly and annual basis. However, at undervalued levels, these penny stocks have downside that’s capped. On the other hand, the upside potential is meaningful.
Let’s therefore discuss these potential 5x to 10x penny stocks to buy for a time horizon of five years.
New Pacific Metals (NEWP)
The coming year is likely to be positive for precious metals with the possibility of multiple rate cuts. New Pacific Metals (NYSEAMERICAN:NEWP) stock therefore looks attractive. After remaining sideways for the last 12 months, a big breakout on the upside seems likely.
As an overview, New Pacific is involved in the discovery and development of silver and gold deposits in Bolivia. The Company’s Silver Sand asset is estimated to have 171 million ounces of silver with a mine life of 14 years. The project has an after-tax net present value of $726 million. To put things into perspective, New Pacific commands a market valuation of $310 million. Clearly, NEWP stock is massively undervalued.
At the same time, the Company has other promising assets. Carangas Project has a total indicated resources of 560Moz gold. Further, the Silverstrike asset has multiple targets for silver mining. In terms of asset development, the Company expects to complete the pre-feasibility study for Silver Sand in the first half of 2024. With a zero-debt balance sheet and cash of $28 million, financial flexibility is high to pursue timely project development.
Standard Lithium (SLI)
Standard Lithium (NYSEAMERICAN:SLI) is another name among penny stocks to buy for multibagger returns. With the depressed lithium price, SLI stock has corrected by 45% in the last 12 months. This seems like a good buying opportunity with the Company having some quality lithium assets.
Talking about the asset, the Company’s Lanxess project has an after-tax net present value of $772 million. Just 25 miles west of the Lanxess project is the game-changing asset. Standard Lithium has discovered one of the highest confirmed lithium grade brine in Arkansas. The asset has a base case net present value of $4.5 billion. At a market valuation of $371 million Standard Lithium is therefore a buy. In the next five years, I will not be surprised if SLI stock delivers 10x returns.
Of course, execution is the key, but I don’t see any major concerns in terms of financing project development. It’s worth mentioning here that Lithium Americas (NYSE:LAC) received the funding and backing of General Motors (NYSE:GM) for its prized Thacker Pass project. A similar scenario is likely for Standard Lithium.
Ring Energy (REI)
Ring Energy (NYSEAMERICAN:REI) is an independent exploration and production company. REI stock has been depressed in the last 12 months, but I believe that the penny stock is deeply undervalued and poised for a big comeback rally.
I must mention at the onset that recession fears have subdued oil prices. However, with production cuts coupled with potential rate cuts next year, I am bullish on the oil and gas industry. Coming to Ring Energy, an asset base of 138.1mmboe (proved reserves) is a big positive. The net present value of the Company’s asset is $2.77 billion and REI stock is undervalued considering asset valuation.
Of course, that’s not the only reason to be bullish. For Q3 2023, Ring Energy reported an adjusted operating cash flow of $48.5 million. I expect the Company’s OCF to swell further in 2024 with the guidance for “meaningful growth in production.” As cash flows swell, there is a strong case for Ring Energy to initiate dividends.
I have remained bullish on Bitfarms (NASDAQ:BITF) in the last few months. There are additional reasons to be positive and BITF stock has surged by over 30% in the last five trading days.
As an overview, Bitfarms is a Bitcoin (BTC-USD) miner. With the cryptocurrency trending higher, the outlook for Bitfarms is positive. It’s worth noting that Bitcoin halving is due next year and that’s a catalyst for a bigger rally.
Specific to Bitfarms, I like the fact that the Company has a quality balance sheet. As of September, the Company reported $73 million in cash and digital assets. The recent private placement adds $44 million to the cash buffer. This provides high flexibility to pursue aggressive mining capacity expansion.
It’s also worth noting that the Company’s hash rate capacity was 6.3EH/s as of November. By the second half of 2024, the Company expects to boost capacity to 17EH/s. Therefore, with tripling of capacity, Bitfarms will be positioned for stellar revenue and cash flow growth.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) stock performance has been dismal to say the least. A plunge of 75% in the last 12 months has been triggered by mounting losses, supply chain challenges, and doubts on execution capabilities.
However, there is no doubt that the hydrogen economy is positioned for growth. If Plug Power can navigate the current challenges and emerge strong, the stock can easily trade at 10x or 15x from current levels. Without doubt, PLUG stock is a high-risk bet, but I would consider some exposure.
Coming to the growth plans, Plug Power expects to clock revenue of $1.2 billion for the year. Further, revenue is guided to increase to $6 billion by 2027 and $20 billion by 2030. By the end of the decade, the Company expects gross margin of 35%. These are ambitious plans and the markets will wait to see the execution. If Plug Power moves in the right direction, the stock can be a massive value creator.
Tilray Brands (TLRY)
Tilray Brands (NASDAQ:TLRY) can be a 10-bagger within the next few months if cannabis was legalized at the federal level. However, I am not looking at that scenario for now. Even leaving that aside, TLRY stock is massively undervalued.
With acquisitions in the last few quarters, Tilray is a slightly different Company. As the fifth largest craft beer brewer in the United States, the Company is positioned to benefit in a $30 billion industry size. Further, the U.S. craft beer market is expected to grow at a CAGR of 7.2% through 2030.
On the cannabis front, Tilray reported 37% growth in international cannabis revenue on a year-on-year basis for Q1 2024. The Company also expects to generate positive adjusted free cash flow for fiscal year 2024.
It’s worth noting that Q1 2024 revenue growth was driven by the medicinal cannabis segment. As the Company makes inroads into Europe, there is a big addressable market.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) stock is another name that has disappointed investors. However, the stock looks interesting at current levels of $1.4. Assuming that Solid Power commercializes solid-state batteries by 2026 or 2027, SLDP stock can be a 10-bagger on a conservative basis.
It’s worth noting that commercialization of solid-state batteries is few years away. However, business developments have been positive for Solid Power. The Company recently reported that A-1 EV cell has been delivered to BMW (OTCMKTS:BMWYY) for automotive qualification. This is an important landmark and positive news from testing can trigger a big price action.
I must add here that the Company has already licensed its cell design and technology to BMW. This will allow for parallel research and development. With Ford (NYSE:F) as another automotive partner, the Company has a strong backing.
As of Q3 2023, Solid Power reported cash and equivalents of $422 million. A strong cash buffer ensures that there is no dilution in the next 12 to 18 months.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
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.