Small companies with a big vision for growth that can surprise in terms of value creation
The penny stocks space can be a massive wealth creator even with a small portfolio allocation. Ideally, I would not go beyond 10% portfolio allocation towards penny stocks. However, if there are multiple 10x or 20x stories, the impact on the portfolio can be significant.
The first rule however is to completely ignore purely speculative penny stocks. I would look at penny stocks that represent companies with average to good business fundamentals. It’s a bonus if industry tailwinds are positive through the decade.
At the same time, it’s important to tone down expectations and hold with patience. Not all penny stocks will become 10x in quick time. I would look at good businesses and consider a time horizon of five years. Of course, I would closely watch business developments to reaffirm the hold thesis.
Let’s therefore talk about seven attractive penny stocks to buy for massive wealth creation.
Tilray Brands (TLRY)
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Without doubt, Tilray (NASDAQ:TLRY) is the most undervalued cannabis penny stock. From current levels of $2.1, I believe that 10x returns are likely in the next five years. Further, I am not discounting the possible federal level legalization of cannabis in the United States.
Recently, Tilray reported record Q2 2024 revenue with revenue increasing by 34% on a year-on-year basis to $194 million. It’s worth noting that Tilray is the market leader for recreational cannabis in Canada. Further, during the quarter, international cannabis net revenue increased by 55% on the back of growth in the medicinal cannabis business. It’s likely that Europe will be a key market for Tilray in the medicinal cannabis business through the decade.
With diversification, Tilray is also the fifth largest craft beer brewer in the United States. For Q2, the Company’s beverage alcohol net revenue increased by 117% to $47 million. Strong presence in the U.S. also provides a strategic infrastructure for growth in a scenario of federal level legalization of cannabis. Overall, with a diversified business and a big addressable market for cannabis, Tilray is positioned to create value.
Archer Aviation (ACHR)
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Archer Aviation (NYSE:ACHR) stock has witnessed a meaningful correction from 52-week highs of $7.5. With the stock trading just below $5, it’s a good opportunity to accumulate. It’s worth noting that the flying car market is still at a nascent growth stage. If Archer can build on the positive developments, the stock is likely to be a massive value creator.
It’s worth noting that Archer is targeting the commercialization of eVTOL in the U.S. in 2025. It’s likely that scaling-up the business will be gradual, but Archer is setting a strong growth platform.
Besides the United States, the Company has already partnered with Abu Dhabi Investment Office for the launch of all-electric air taxi service across the UAE in 2026. In the same year, the Company plans to launch all-electric taxi service across India in partnership with InterGlobe Enterprises. I expect more partnerships in various countries, which will support stellar growth beyond 2025.
Standard Lithium (SLI)
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Lithium prices has remained weak after a big correction in 2023. However, there is little doubt on the point that a significant supply-gap is likely in the next few years. The weakness in lithium is therefore a golden opportunity to accumulate the best lithium stocks for multibagger returns. Standard Lithium (NYSE:SLI) seems massively undervalued considering the asset potential.
To put things into perspective, Standard Lithium has a market valuation of $271 million. The prized lithium asset of the Company has an after-tax base case net present value of $4.5 billion. Of course, the project needs financing of $1.27 billion for development. However, I don’t see that as a concern once lithium trends higher.
Further, the Company’s Lanxess project has an after-tax net present value of $722 million. The Bristol Lake asset will add to the production potential in the next few years. SLI stock is therefore a steal at current valuations.
Solid Power (SLDP)
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Solid Power (NASDAQ:SLDP) is a high-risk bet even among penny stocks. The Company is working towards the potential commercialization of solid-state batteries. While the stock has plunged, I believe that a 10x rally would not be a challenge if Solid Power can commercialize solid-state batteries.
Strong partnership is one reason to like Solid Power. In December 2022, the Company licensed its cell design and manufacturing technology to BMW (OTCMKTS:BMWYY) for parallel research and development. In Q3 2023, the Company made its first A-1 EV cell deliveries to BMW to formally enter automotive qualification.
Recently, the Company also deepened its partnership with SK On with a new agreement. This includes instillation of pilot cell production line for SK On at Korea facility besides the collaboration on research and development.
As of Q3 2023, Solid Power reported a strong cash buffer of $422 million. Therefore, there is ample flexibility to invest in R&D and potentially accelerate the commercialization.
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Bitfarms (NASDAQ:BITF) stock is another potential 10-bagger if Bitcoin (BTC-USD) remains in an uptrend. It’s very likely that Bitcoin will trade at new all-time highs in the current bull market for cryptocurrencies. This is likely to translate into significant value creation for Bitcoin miners.
As of December 2023, Bitfarms reported hash rate capacity of 6.5EH/s. On a year-on-year basis, mining capacity increased by 44%. However, the Company is going aggressive on expansion with capacity expected to increase to 17EH/s by the second half of the year. With nearly tripling of capacity, Bitfarms is positioned for stellar revenue and cash flow upside.
It’s also worth noting that Bitfarms has robust fundamentals. The Company expects to be debt-free by February 2024. Additionally, Bitfarms has a cash buffer (including digital assets) of $116.2 million. Therefore, financing growth is not a concern and I expect further mining capacity expansion in 2025.
Yatra Online (YTRA)
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Yatra Online (NASDAQ:YTRA) stock is among the deeply undervalued penny stocks to buy. Yatra is an online travel Company in India and operates in the air ticketing, hotels, and travel packages business.
Besides being an emerging player, the reason to be bullish on Yatra is operations in India. It’s likely that the country will be among the fastest growing economies through the decade. With a swelling middle-class and favourable demographics, the tourism industry is poised to take-off.
Specific to Yatra, the Company has positioned itself as a major corporate travel player in India. Yatra has a customer base of 800 corporate with an addressable employee base of more than seven million. The corporate travel industry is estimated at $32 billion and provides significant headroom for growth.
At the same time, Yatra is investing to build presence in the consumer travel market, which has an estimated market size of $19 billion. Given the potential, I expect healthy revenue and EBITDA growth in the coming years.
Blade Air Mobility (BLDE)
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Blade Air Mobility (NASDAQ:BLDE) is a micro-cap that has significant upside potential in the coming years. The Company is a provider of air transportation alternatives to the congested ground routes in the U.S.
For Q3 2023, Blade reported stellar revenue growth of 56% on a year-on-year basis to $71.4 million. Further, the Company achieved adjusted EBITDA break-even during the quarter. It’s likely that EBITDA margin expansion will sustain and that’s a key upside catalyst for BLDE stock.
Another point to note is that the urban air mobility provider has an asset light business model. The financing requirements are therefore not significant and free cash flows will swell in the coming years.
In terms of segment, the MediMobility Organ Transport business is likely to be the growth driver. Being a critical part of the healthcare business need, the segment has positive tailwinds for the long term. BLDE stock therefore looks attractive and is poised for value creation.
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.comPublishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
I'm Faisal Humayun, a seasoned research analyst with over 12 years of extensive experience in credit research, equity research, and financial modeling. Throughout my career, I have authored more than 1,500 stock-specific articles, specializing in the technology, energy, and commodities sectors. My expertise lies in analyzing market trends, identifying potential investment opportunities, and providing insights into value creation strategies.
Now, let's delve into the concepts used in the article about small companies with a big vision for growth and the potential wealth creation in the penny stocks space:
Penny Stocks and Wealth Creation:
- Penny stocks refer to shares of small companies trading at a low price, usually below $5 per share.
- The article suggests that despite the risks, penny stocks can be a significant wealth creator, especially with a small portfolio allocation.
Portfolio Allocation Strategy:
- The recommended portfolio allocation towards penny stocks is ideally capped at 10%.
- The impact on the portfolio can be substantial if there are multiple stocks with 10x or 20x return potential.
Selection Criteria for Penny Stocks:
- Emphasizes the importance of avoiding purely speculative penny stocks.
- Focuses on penny stocks representing companies with average to good business fundamentals.
- Considers industry tailwinds as a bonus, especially if positive trends are expected over the decade.
- Encourages a patient approach, acknowledging that not all penny stocks will realize significant returns quickly.
- Recommends looking at good businesses with a time horizon of five years.
- Advocates closely monitoring business developments to reaffirm the investment thesis.
Now, let's briefly touch upon the specific penny stocks mentioned in the article:
Tilray Brands (TLRY):
- Undervalued cannabis penny stock with potential for 10x returns in the next five years.
- Market leader for recreational cannabis in Canada.
- Diversified business, including a significant presence in the U.S. craft beer brewing industry.
Archer Aviation (ACHR):
- Developing electric vertical takeoff and landing (eVTOL) aircraft.
- Targeting commercialization in the U.S. in 2025, with global expansion plans.
- Partnership with Abu Dhabi and plans for an all-electric air taxi service.
Standard Lithium (SLI):
- Undervalued lithium stock with significant potential returns.
- Strong lithium asset potential, with a market valuation of $271 million.
- Projects with substantial after-tax net present values, including Lanxess and Bristol Lake.
Solid Power (SLDP):
- High-risk penny stock focused on commercializing solid-state batteries.
- Notable partnerships with BMW and SK On for research and development.
- Reported a strong cash buffer of $422 million as of Q3 2023.
- Bitcoin mining company with potential for significant value creation.
- Hash rate capacity of 6.5EH/s, with aggressive expansion plans.
- Expected to be debt-free by February 2024 and has a cash buffer of $116.2 million.
Yatra Online (YTRA):
- Undervalued Indian online travel company.
- Focus on corporate travel in India with a customer base of 800 corporate clients.
- Positioned for growth in both corporate and consumer travel markets.
Blade Air Mobility (BLDE):
- Micro-cap provider of air transportation alternatives in the U.S.
- Reported stellar revenue growth and achieved adjusted EBITDA break-even in Q3 2023.
- Asset-light business model with positive prospects in the MediMobility Organ Transport segment.
These insights are intended to provide a comprehensive overview of the concepts and specific stocks discussed in the article, offering a foundation for further research and analysis.