The year has been a mixed bag for undervalued penny stocks as investors continue to remain cautious. I believe that even 2024 will be a year of careful stock selection than a broad-based rally across sectors and stocks. If we look at the positives, potential rate cuts in the second half of next year can boost market sentiments. However, the macroeconomic headwind sustains.
Overall, my strategy would be to remain overweight on blue-chip dividend stocks. I would look at 30% to 40% portfolio exposure towards growth stocks and undervalued penny stocks.
Since I talked about careful stock selection, my focus is on undervalued penny stocks that represent companies with good fundamentals.
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Further, there are potential impending catalysts that can trigger big price action in these stocks. Over the next 12 months, these penny stocks will probably trade at least 50% to 100% higher than current levels.
Let’s discuss the reasons to be bullish on these undervalued penny stocks.
Hecla Mining (HL)
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Hecla Mining (NYSE:HL) is among the most undervalued penny stocks to buy. HL stock also offers a dividend yield of 0.54% and I expect healthy growth in dividends in the next few years.
As an overview, Hecla is among the largest silver miners in the United States. However, the company also has gold assets and production. With interest rates likely to have peaked out, it’s a good time to consider exposure to precious metals. Potential rate cut and a rally in precious metals can trigger big upside for HL stock.
The company has suffered production setback during the year with the suspension of mining from Luck Friday. However, there are two points to note. First, the company has guided for Lucky Friday operations resumption in the beginning of 2024. Further, ramping-up of production from Keno Hill asset is likely to boost production.
For year-to-date, Hecla has produced 11.4 million ounces of silver. The target is to boost silver production to 20 million ounces by 2025. If this is associated with silver trending higher, HL stock is likely to go ballistic.
Bitfarms (BITF)
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I would not ignore crypto stocks with Bitcoin (BTC-USD) trending higher. Bitfarms (NASDAQ:BITF) stock seems like a good bet among Bitcoin miners. The penny stock has strong fundamentals and I would expect multi-bagger returns in the next 12 months.
The first point to note is that Bitfarms has a robust liquidity buffer of $65.8 million as of Q3 2023. Further, the company expects to be debt-free by February 2024. With high financial flexibility, Bitfarms is positioned for aggressive mining capacity growth. If this is coupled with Bitcoin trending higher, revenue growth is likely to be stellar.
I must also mention that for Q3 2023, Bitfarms reported an EBITDA margin of 20%. Assuming that Bitcoin trades near all-time highs next year, EBITDA margin would be more than 50%. Bitfarms is therefore positioned to generate robust free cash flows. Overall, I believe that BITF stock can deliver 3x to 5x returns in the coming quarters.
Nordic American Tankers (NAT)
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Nordic American Tankers (NYSE:NAT) would easily find a place among undervalued penny stocks to buy. At a forward price-earnings ratio of 7.9, valuations are attractive and NAT stock offers a dividend yield of 11.76%.
The company acquires and charters its Suezmax tankers across the globe. The current fleet of 19 Suezmax tankers has a capacity of 1 million barrels of oil each.
Coming to the positives, the average time charter equivalent rate for the company in Q2 2023 was $39,300 per day per ship. This was 96% higher on a year-on-year basis.
Further, the company is already 57% booked for its spot voyage date in Q3 2023 at an average TCE of $34,800 per day per ship. Considering the current macroeconomic and geopolitical conditions coupled with tight supply of ships, the outlook for Nordic American Tankers is positive. Given the high day rates, dividends are sustainable and total returns are likely to be robust.
Ring Energy (REI)
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Ring Energy (NYSE:REI) seems like a deeply undervalued Permian play that’s poised for a breakout rally. For year-to-date, REI stock has declined by 23% and trades at a forward price-earnings ratio of 3.2. I would not be surprised if the stock doubles in quick time as business developments have been positive.
It’s worth noting that as of December 2022, Ring Energy had proven reserves of 138.1mmboe. The present value of the company’s reserves stands at $2.77 billion. This further underscores my view that REI stock is deeply undervalued.
I also like the fact that Ring Energy reported adjusted free cash flow of $6.1 million even after incurring a capital expenditure of $42.4 million in Q3 2023. I expect free cash flows to swell in the coming years backed by higher production and improved price realization. The company has already guided for a “meaningful growth in production” in the coming year.
Cronos Group (CRON)
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Cronos Group (NASDAQ:CRON) is among the most undervalued cannabis penny stocks to buy. At current levels of $2, the company commands a market valuation of $770 million. In comparison, the company reported $840 million in cash and equivalents as of Q3 2023. The robust cash buffer provides the company with ample flexibility for organic and acquisition driven growth.
It’s also worth noting that for Q3, Cronos reported healthy revenue growth of 22% on a year-on-year basis to $24.8 million. The company’s stellar growth in Canada backed strong quarterly numbers. Cronos has also launched Peace Naturals brand in Germany. In the coming quarters, Europe will support acceleration in growth.
Another positive is that Cronos reported adjusted EBITDA loss of $15.2 million for Q3 2023. EBITDA level losses have narrowed on a year-on-year basis. I expect further improvement in margins backed by operating leverage. Cronos has already guided for positive net change in cash for financial year 2024.
Wallbox (WBX)
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It’s been a dismal year for electric vehicle charging infrastructure stocks and Wallbox (NYSE:WBX) is no exception. However, plunging by 75% in the last 12 months, WBX stock looks oversold and poised for a reversal rally.
For Q3 2023, Wallbox reported revenue of 32.5 million euros. However, for the same period, EBITDA loss was 16.6 million euros. The good news is that the company is focusing on cost cutting and achieved cost reduction of 4.5 million euros for the quarter. With a total cost reduction target of 50 million euros, investors can expect better margins in 2024.
Another positive is that Wallbox has diversified geographic presence. For Q3, the company derived 70% revenue from Europe. However, the company has already made inroads in North America, Latin America, and Asia Pacific. Therefore, with a big addressable market, revenue growth is likely to remain robust.
I must add here that for Q3, Wallbox reported 285% unit growth and 350% revenue growth in DC public charging network. In the coming quarters, DC chargers are likely to be revenue growth drivers.
Solid Power (SLDP)
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Solid Power (NASDAQ:SLDP) stock is another deeply undervalued penny stock that’s poised for multi-bagger returns. The company is working towards the commercialization of solid-state batteries.
In a scenario, where progress remains smooth, SLDP stock can deliver 10x to 20x returns from current levels. Even for the near-term, the stock can rally by 100% from oversold levels. Of course, it’s a high-risk name and exposure should be limited.
In a major business development, Solid Power has “made first A-1 EV cell deliveries to BMW to formally enter automotive qualification.” If validation testing by automotive players is positive, Solid Power will be well on-track for commercialization in 2026.
It’s worth mentioning here that in December 2022, Solid Power licensed its cell design and manufacturing process to BMW. The objective is to allow parallel research and development. Ford is also an automotive partner for the company. Therefore, SLDP is far from being a speculative stock.
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.
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