Last year was the worst year for the markets since the financial crisis of 2008. While the index slipped, the correction was felt most in growth and penny stocks. In challenging times, investors shift their focus towards blue-chip stocks for capital preservation and dividend income. I subscribe to this strategy. However, it’s also a good time to selectively accumulate quality growth stocks and penny stocks that are flying under the radar.
Among penny stocks, I like to think there are broad classifications. There are purely speculative penny stocks with weak fundamentals. There are also penny stocks that represent companies that are likely to grow over time. I would focus on some of these best penny stocks that are overlooked in a bear market.
Once market sentiment shifts, these under-the-radar penny stocks are likely to surge higher. We have seen in previous bull markets (such as that of 2021) that penny stocks can deliver multibagger returns at the blink of an eye. I would patiently wait for another euphoric market cycle for scintillating returns from these penny stocks.
| TBLA | Taboola.com | $2.94 |
| VLN | Valens Semiconductor | $2.49 |
| BITF | Bitfarms | $1.01 |
| CURLF | Curaleaf Holdings | $2.45 |
| PSNY | Polestar Automotive | $3.48 |
| APPH | AppHarvest | $0.49 |
| WDH | Waterdrop | $2.84 |
Taboola.com (TBLA)
Taboola.com (NASDAQ:TBLA) stock has surged by 56% in the last six months. However, the stock remains under the radar and is poised for multibagger returns.
As an overview, the company operates an artificial intelligence-based algorithmic engine platform globally. The company works with digital property owners to deliver audience engagement and monetization. Taboola also works with over 15,000 advertisers, enabling them to reach 500 million daily active users.
The company is attractive in terms of its cash flow potential. For Q1 2023, Taboola reported revenue of $327.7 million and operating cash flow of $17.5 million.
However, the company expects its investments to begin paying off in 2024, with Taboola guiding for free cash flow of $100 million. Furthermore, EBITDA-to-free-cash-flow conversion is expected to be in the range of 50% to 60% in the coming years. Therefore, the company’s growth and cash flow potential is only starting to be seen by investors.
Taboola believes that the total open web market is worth $70 billion. Therefore, there is ample headroom for growth as Taboola expands globally.
Valens Semiconductor (VLN)
The recent performance of Valens Semiconductor (NYSE:VLN) stock has been unimpressive. However, I believe that the stock is a hidden gem of in-vehicle networking. The company describes itself as the “provider of high-speed connectivity solutions to the automotive and audio-video industries.”
In the automotive industry, the company is a provider of critical technology for advanced driver assistance systems and autonomous driving platforms. Clearly, these technologies represent multi-billion-dollar addressable markets.
From a financial perspective, there are two catalysts for Valens. First, the company expects to achieve EBITDA break-even by the end of 2023. Furthermore, Valens has guided for positive free cash flow in 2024.
It’s worth noting that the company’s VA6000 chipset has already been deployed in Mercedes-Benz cars. The company is also moving towards mass production of VA7000. Additionally, new products embedding the VS6320 chipset will be introduced in 2024. With this pipeline, the company’s outlook for revenue and cash flow growth remains robust.
Bitfarms (BITF)
Among Bitcoin (BTC-USD) miners, Bitfarms (NASDAQ:BITF) stock is perhaps the most overlooked and undervalued. Assuming a scenario where Bitcoin trades at or near previous highs, BITF stock can deliver 5x to 10x returns.
There are two major reasons to like Bitfarms. First, the company reported average direct cost of Bitcoin production at $10,000 for 2022. With the cryptocurrency trending higher, Bitfarms is positioned for healthy EBITDA margin expansion.
Furthermore, Bitfarms has focused on improving its balance sheet through crypto winter. As of February, the company reported $23 million in debt. Since June 2022, total debt has declined by 86%. With $38 million in liquidity as of December 2022, the company’s financial flexibility is robust.
As of April, Bitfarms reported mining capacity of 5EH/s. On a year-on-year basis, mining capacity has increased by 52%. Given the market’s increasingly bullish outlook for Bitcoin, I expect continued capacity expansion to boost digital asset holdings.
Curaleaf Holdings (CURLF)
Curaleaf Holdings (OTCMKTS:CURLF) is another under-the-radar penny stock that’s poised for multibagger returns. Due to heightened regulatory headwinds for the cannabis sector, CURLF stock has declined by 50% in the past year. However, I see this correction as a good accumulation opportunity.
A recent report indicates that even without federal reforms, U.S. cannabis sales will hit $71 billion by 2030. If Europe is included, the total addressable market will be well in excess of $100 billion. I would therefore accumulate quality penny stocks from the cannabis sector.
Specific to Curaleaf, there are two kea reasons to be bullish. First, the company already has presence in 21 states in the U.S. and is expanding presence in Europe.
Furthermore, Curaleaf has been investing heavily in research and development. Currently, the company has 15 new products in the active pipeline. Additionally, more than 50 products are in the front-end innovation process. A strong pipeline will ensure steady revenue growth.
Polestar Automotive (PSNY)
Investors have grown increasingly cautious around EV stocks, considering the deep correction seen in this space last year. However, every correction provides overreactions and buying opportunities. I think Polestar Automotive (NASDAQ:PSNY) is among the lesser know EV stocks that finds itself in such a category.
Last year, Polestar delivered 51,491 cars, representing 80% growth on a year-on-year basis. For the current year, the company has guided for 60% growth in deliveries. With these numbers, PSNY stock would have surged in a bull market.
Of course, the company’s cash burn is a concern. However, for a company that’s investing in marketing and product development, it’s expected. With operating leverage, EBITDA level losses will narrow in the coming years.
Polestar has an attractive line-up of new models that will continue to boost deliveries growth. At the same time, the company is already present in 27 countries globally. In the foreseeable future, fund raising is a potential catalyst for PSNY stock upside.
AppHarvest (APPH)
AppHarvest (NASDAQ:APPH) seems to be a forgotten name among penny stocks. There was a time when indoor farming stocks were in the limelight. However, the excitement proved to be short-lived, as investors balked on this sector due to cash burn and business scalability concerns.
After a deep correction, APPH stock now looks attractive. The stock has witnessed a small rally of 13% in the last one month. I expect this upside to be sustained, as business developments are encouraging.
For Q1 2023, AppHarvest reported 150% year-on-year sales growth to $13 million. Strong quarterly numbers came on the back of expansion to a four-farm network covering an area of 165-acres. For the full year, the company has guided for sales in the range of $40 t0 $50 million.
The concern is that AppHarvest expects to be adjusted EBITDA positive only in 2026. However, the markets have discounted this news and as revenue growth remains robust, financing is unlikely to be a concern.
Waterdrop (WDH)
Waterdrop (NYSE:WDH) is another penny stock worth buying at current levels. This company is a technology platform that’s dedicated to selling insurance and health service in China.
The Covid-19 pandemic has accelerated the adoption of insurance policies, and Waterdrop is well-positioned to benefit. The company has also been making the right moves to boost sales growth.
As an example, Waterdrop offered 536 insurance products on its platform as of September 2022. By the end of 2022, the number of products offered increased to 775. This is likely to translate into growth in premiums generated from the marketplace.
Besides the sale of insurance products, Waterdrop has an e-find patient platform. The platform is being used to enrol patients for accelerating clinical trials. In the coming years, Waterdrop intends to develop more high-value contract research organization services along the value chain. This will provide ample scope for revenue growth.
Penny Stocks
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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.