7 Massively Undervalued Penny Stocks to Buy for 7-Bagger Returns

Stocks to buy

My view is that expansionary monetary policy in the second half of 2024 is likely to be a major catalyst for a broad-based market rally. It’s therefore a good time to accumulate high-quality growth stocks. At the same time, risk taking investors can consider exposure to undervalued penny stocks that can potentially go ballistic.

While I am looking at a near term catalyst, the focus of this column is on penny stocks to buy and hold until 2027. During this period, I believe that the penny stocks discussed are likely to deliver 7-bagger returns.

Since the investment horizon is medium term, I have refrained from talking about purely speculative penny stocks. Instead, my view is on undervalued names with a good business and strong fundamentals. I would not lose sleep by holding a small portion of the portfolio in these undervalued penny stocks.

Let’s discuss the business factors that can trigger a big rally in these ideas within the next three years.

Lithium Americas (LAC)

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In my view, Lithium Americas (NYSE:LAC) stock trading under $5 is a gift. Once sentiments reverse for lithium, LAC stock is likely to go ballistic from deeply undervalued levels.

To put things into perspective, Lithium Americas has a current market valuation of $990 million. In comparison, the after-tax net present value of Thacker Pass asset is $5.7 billion. Purely based on asset valuation, the stock can be a six-bagger from current levels.

However, if we look beyond this, the Thacker Pass has a mine life of 40 years. Once both the phases of the lithium asset are commercialized, the annual EBITDA from the asset is likely at $2 billion. Clearly, operating, and free cash flows will be robust. Further, estimates can change on the upside if lithium skyrockets due to supply-gap concerns in the coming years.

I would therefore buy and hold LAC stock. With commercialization of the Thacker Pass asset due in 2027, multibagger returns are likely before that as the markets discount the cash flow potential.

Archer Aviation (ACHR)

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The flying car industry is at a nascent stage. Companies that are likely to commercialized eVTOL aircraft in the next 12 months will have an early-mover advantage. Considering the immense potential the industry holds, I expect multibagger returns from the best flying car stocks.

Archer Aviation (NYSE:ACHR) is an attractive name to consider at current levels of $3.7. It’s worth noting that ACHR stock has corrected by almost 40% for year-to-date. This seems like a good opportunity to consider fresh exposure.

I like the fact that Archer already has an order backlog of $3.5 billion. The Company is constructing its high-volume manufacturing facility in Georgia. This facility is likely to have a capacity of building 650 aircraft annually.

With commercialization likely next year, Archer is positioned for healthy upside in revenue. It’s also worth noting that the Company has stitched partnerships in UAE and India for expansion in 2025 and 2026 respectively.

As Archer gradually completes the required certifications in the United States, I expect the Company to make inroads into new geographies. The initial years of commercialization are therefore likely to be exciting and ACHR stock can potentially deliver multi-fold returns.

Bitfarms (BITF)

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Bitfarms (NASDAQ:BITF) is one stock where I believe that seven-bagger returns are likely well before 2027. The Bitcoin (BTC-USD) miner has corrected sharply by almost 40% for year-to-date. There are two reasons for the correction even as Bitcoin trends higher.

First, Bitfarms raised $375 million from an at-the-market equity offering program. The markets have therefore discounted the dilution factor. Further, with Bitcoin halving, mining is going to be relatively challenging. That’s another factor being discounted in the stock.

Having said that, BITF stock looks undervalued considering the outlook for Bitcoin and the expansion plans. Chart expert, Peter Brandt expects Bitcoin to peak at $200,000 in the current bull market. If this holds true, BITF stock is likely to go through the roof.

Specific to Bitfarms, fundamentals are strong with a zero-debt balance sheet and a robust liquidity buffer. The Company plans to increase hash rate capacity from 6.5EH/s at the end of 2023 to 21EH/s by the end of the year. This is likely to translate into healthy revenue and cash flow upside. Further, as Bitcoin trends higher, the value of digital assets in the balance sheet will continue to swell.

Cronos Group (CRON)

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There seems to be good things happening for the cannabis sector. Recently, Germany legalized the recreational use of cannabis. It’s also likely that the U.S. will reclassify cannabis as a less dangerous drug (Schedule III).

Reports also indicate that even without federal level legalization, the U.S. cannabis market is expected to be worth $71 billion by 2030. Therefore, with a big addressable medicinal and recreational cannabis market in U.S. and Europe, there is ample headroom for growth.

Cronos (NASDAQ:CRON) is among the best cannabis stocks to buy to benefit from positive industry tailwinds. It’s worth noting that Cronos has gone slow on expansion plans. Before 2023, the Company had presence in Canada and Israel.

However, Cronos has entered the medicinal cannabis market of Germany and Australia last year. Recently, the Company also announced entry in the United Kingdom. This might be the beginning of an aggressive expansion drive with Cronos sitting on a cash buffer of $862 million. Therefore, with the possibility of accelerated growth, I expect CRON stock to trend higher from undervalued levels.

Ring Energy (REI)

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With the possibility of rate cuts in 2024 and next year, I expect energy prices to trend higher. Ring Energy (NYSE:REI) stock looks significantly undervalued after remaining sideways for the last 12 months. Current levels of $1.8 look attractive for accumulation.

The first point to note is that Ring Energy reported proved reserves of 129mmboe as of 2023. The proved reserves have a PV10 (present value of estimated future oil and gas revenues, net of forecasted direct expenses) of $1.65 billion. In comparison, Ring Energy has a market valuation of $350 million. This puts into perspective the extent of undervaluation.

It’s also worth noting that for Q1 2024, the Company reported adjusted free cash flow of $15.6 million. Ring Energy has reported positive AFCF for 18 consecutive quarters. With upside in production coupled with potentially higher realized price, I expect FCF to swell further. This will boost the Company’s financial flexibility for investing in proved undeveloped reserves.

Solid Power (SLDP)

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Among EV penny stocks, Solid Power (NASDAQ:SLDP) is the best pick for multibagger returns. The Company is working towards the commercialization of solid-state batteries and business developments have been encouraging. After a deep correction, SLDP stock has trended higher by 20% for year-to-date. I expect this positive momentum to sustain.

Last year, Solid Power delivered A-1 sample cells to clients for validation testing. The Company is targeting to deliver A-2 sample cells this year. This cell will address the challenges in the previous design. Further, the Company has also expanded electrolyte sampling with shipments to multiple potential customers.

I must add here that Solid Power has the backing of strong automotive partners that includes Ford (NYSE:F) and BMW (OTCMKTS:BMWYY). Earlier this year, the Company deepened its partnership with SK On. The target is to embed Solid Power into the Korean battery ecosystem.

Therefore, with continued progress on the R&D front, strong partners, and ample financial flexibility, SLDP stock is a steal at current levels.

Aker Carbon Capture (AKCCF)

With global focus on decarbonisation, Aker Carbon Capture (OTCMKTS:AKCCF) is an interesting penny stock to buy. The Company is a provider of products, solutions, and technology in the field of carbon capture. With a big addressable market in U.S. and Europe, I expect Aker Carbon to deliver stellar growth in the coming years.

An important point to note is that the Company’s proprietary carbon capture technology already has 60,000 operating hours. The technology is therefore proven and Aker has already delivered seven carbon capture units. Further, Aker Carbon has a strong order backlog of 2.3 billion Norwegian krone as of Q1 2024.

This is however just the beginning with the Company targeting to secure contracts to capture 10 million tonnes CO2 per annum by 2025. If this target is achieved, I expect stellar revenue and EBITDA growth. With the Company making aggressive inroads in the U.S. markets, I believe that the target is realistic.

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.

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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