Equity markets have witnessed some volatility recently. I expect that volatility will continue with the markets anticipating rate cuts. Further, it remains to be seen if the Fed is already behind the curve. As an investor, I would do two things. First, protect my portfolio by going overweight on low-beta stocks. Further, look at corrections as opportunities to buy quality growth stocks. This column focuses on three under-$20 stocks that are likely to deliver multibagger returns in the next 36 months.
In relatively challenging market conditions, it’s best to stay away from purely speculative ideas. Therefore, the first screener that I have used is to identify growth stocks under-$20 with strong fundamentals. The second important screener is valuations. The ideas discussed are attractively valued and I see headroom for ample upside from current levels.
Let’s discuss the business factors that are likely to support a big rally for these under-$20 stocks.
Li Auto (LI)
Electric vehicle stocks have been depressed in the last 12 months and I believe that it’s a good time for accumulating quality names. Li Auto (NASDAQ:LI) looks attractive after a correction of almost 50% for year-to-date. The EV stock trades at a forward P/E of 16.7 and can deliver multibagger returns in the next few years.
The first point to note about Li Auto is strong fundamentals. The company ended Q1 2024 with a cash buffer of $13.7 billion. High financial flexibility allows Li Auto to aggressively invest in retail expansion within China. At the same time, Li Auto has been maintaining a technological edge. The company expects to launch level 3 self-driving technology by 2025.
It’s worth noting that tariffs in the European Union and the U.S. have negatively impacted Chinese EV companies. However, Li Auto has focused exclusively on China. A potential international expansion is likely to be in the Middle-East. In my view, Southeast Asia is another market that the EV maker is likely to target in the next 24 months.
Marathon (MARA)
Marathon (NASDAQ:MARA) stock has remained sideways in the last 12 months. I see this as a good buying opportunity with the Bitcoin (BTC-USD) miner looking undervalued.
It’s worth noting that Bitcoin has witnessed volatility in the recent past. However, with multiple rate cuts likely in the next 12 months, I expect the cryptocurrency to surge higher. This will translate into healthy growth for Bitcoin miners.
Specific to Marathon Digital, there are multiple reasons to be bullish. First, Marathon reported an energized hash rate of 31.5EH/s as of Q2 2024. On a year-on-year basis, capacity increased by 78%. Marathon expects to end 2024 with a hash rate of 50EH/s. With robust growth in capacity, revenue and EBITDA growth is likely to remain stellar.
Further, Marathon has strong fundamentals. The Bitcoin miner ended Q2 2024 with cash and equivalents of $1.4 billion. With high financial flexibility, there is headroom for expansion beyond 2024. In June, the company also announced Kaspa (KAS-USD) mining operations. Potential diversification of revenue is a good strategy for the long term.
Kinross Gold (KGC)
Gold has been in an uptrend in 2024 and with multiple rate cuts on the cards, I expect the positive momentum to sustain. Citi believes that the precious metal will touch $3,000 an ounce in the next 6 to 18 months. Among gold miners, Kinross Gold (NYSE:KGC) looks attractive and is poised for sustained upside.
The first point to note is that Kinross has strong fundamentals. The company ended Q2 2024 with a liquidity buffer of $2.1 billion. Further, operating cash flow during the quarter was $604 million. With gold likely to remain in an uptrend, the annual OCF visibility is around $3 billion.
It’s worth noting that Kinross has guided for stable gold production through 2026. However, with high financial flexibility, it’s likely that the company will pursue acquisitions. This can change the growth outlook coupled with cash flow visibility. I must add that as OCF swells, Kinross will be positioned to pursue robust dividend growth.
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.
On the date of publication, the responsible editor held a LONG position in MARA.
