Investors largely look at penny stocks to buy from a trading or speculation perspective. The idea is to sell when the stock doubles or triples. In most cases, this strategy makes sense because penny stocks largely represent companies with average or poor fundamentals. The risk factor is therefore high and penny stocks are not worth holding in the core portfolio.
Having said that, there are exceptions. Several high-quality growth stocks of today were penny stocks at one point in time. In the universe of penny stocks, there will be at least 20% ideas that can make it big from a business perspective. If this happens, returns can be 20x, 50x, or 100x.
Therefore, I would selectively look at penny stocks to buy and hold for the next five to seven years. This column discusses three such ideas that represents companies that have a promising future. Let’s discuss the reasons to believe that these are millionaire-maker penny ideas.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) is among the most undervalued penny stocks to buy with millionaire-maker potential. Considering the size of the cannabis market in U.S. and Europe, CRON stock can deliver 20x to 30x returns by the end of the decade.
Of course, the key is successful execution of growth plans. On that front, Cronos seems to be moving in the right direction. The first point to note is that the company has a cash buffer of $855 million. However, I don’t see a spending splurge. Cronos has been judiciously using its cash buffer for gradual expansion.
Earlier, Cronos had presence in Israel and Canada. However, in the last few quarters, the company has entered three new markets of Germany, Australia, and the United Kingdom. With Germany recently legalizing the use of cannabis, Cronos is positioned to benefit.
For Q1 2024, Cronos reported healthy revenue growth of 30% on a year-on-year basis to $25.3 million. With entry into new markets, I expect revenue growth to accelerate. Further, as Cronos moves towards adjusted EBITDA break-even, the stock is likely to rally.
Lithium Americas (LAC)
The best time to buy a sector or stock is when sentiments are overwhelmingly negative. This holds true for lithium stocks and Lithium Americas (NYSE:LAC) is a steal at current levels of $3.80. It’s another story where 20x returns are likely by the end of the decade.
It’s worth noting that Lithium Americas commands a market valuation of $880 million. In comparison, the Thacker Pass lithium asset has an after-tax net present value of $5.7 billion. Additionally, once both phases are operational, the asset is likely to deliver an average annual EBITDA of $2 billion. Clearly, LAC stock is trading at a deep valuation gap.
I must add here that the Lithium Americas has received conditional commitment for a $2.26 billion loan from the U.S. Department of Energy. General Motors (NYSE:GM) has also infused $650 million in two tranches. With financing in place, the company is targeting commercialization in 2027. I expect lithium to be significantly higher compared to current levels once production commences.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) story being a 20-bagger or 30-bagger is based on the assumption that the company commercializes solid-state batteries. After an extended period of correction, SLDP stock has trended higher in the last six months. Backed by positive business developments, it seems that the stock has bottomed out.
Earlier this year, Solid Power deepened ties with SK On to make inroads in the Korean markets. Solid Power will be installing a pilot cell production line for SK On at the Korea facility. Further, the Korean partner will use Solid Power’s cell technology for R&D and to “produce batteries on a new SK On solid-state line in Korea.” Parallel R&D effort is likely to help in accelerating commercialization.
I must add that in December 2022, Solid Power had licensed its cell design and manufacturing processes to the BMW Group (OTCMKTS:BMWYY) for parallel research and development activities. BMW will be replicating Solid Power’s cell pilot production lines at its facilities in Germany. The key point here is that Solid Power is working with some strong partners. This gives confidence that the company will achieve commercialization in the next 24 to 36 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.
