While the markets continue to face macroeconomic headwinds, I still believe that now is a great time to buy some of the most undervalued penny stocks and growth stocks. As an observation, the, the S&P 500 index has trended higher by 11% for year-to-date 2023. However, during this period, several growth and penny stocks have delivered multibagger returns.
For example,Tesla (NASDAQ:TSLA) is a good example among growth stocks and has surged by 107%. Similarly, Riot Platforms (NASDAQ:RIOT), a penny stock at the beginning of the year, has surged by 209%. The key point I want to make is that undervalued stocks can skyrocket in quick time and even in tricky market conditions. This column looks at some of the most undervalued penny stocks to buy. I believe that these stocks can easily double in the next 12 months. The focus is entirely on non-speculative penny stocks with specific business catalysts that will drive stock upside.
Nordic American Tankers (NAT)
Nordic American Tankers (NYSE:NAT) is up about 58% in the last 12 months. However, the stock remains massively undervalued at a forward price-earnings ratio of 5.5. In addition, NAT stock also offers an attractive dividend yield of 16.7%.
As an overview, Nordic American operates a fleet of crude oil tankers. The current fleet comprises of 19 Suezmax tankers. There are two reasons to be bullish on Nordic American. First, the company reported time charter equivalent rate of $51,902 per ship per day. With the operating cost at $8,000 per vessel per day, the company has delivered healthy EBITDA.
Further, the is capital intensive and over leveraging is a concern. Nordic American is well positioned on that front with net debt at $168 million. This implies debt per ship of $8.9 million. With strong day rates, debt servicing is not a concern and Nordic American can continue to pay robust dividends.
Cronos (CRON)
Cronos (NASDAQ:CRON) is among the most undervalued cannabis penny stocks. Potentially helping, a marijuana bill is headed for committee vote within weeks, which could trigger positive price action in CRON stock. In addition, I should note that Cronos commands a market valuation of $670 million. As of Q1 2023, the company reported cash and short-term investments of $836 million. This puts into perspective the level of undervaluation.
Recently, Cronos announced that the company will exit the U.S. hemp-derived CBD operations. The objective is to cut cost. With high financial flexibility, the company is positioned to make an aggressive entry in the U.S. when regulations are favorable. For now, Cronos is focused on cutting cost and achieving positive cash flows in 2024. I also like the fact that the company is investing in research and development. Evidence backed medicinal cannabis is likely to have a big market in the coming decade.
Li-Cycle Holdings (LICY)
Li-Cycle Holdings (NYSE:LICY) stock trades just above $5 and looks undervalued considering the growth potential. The company has a differentiated offering and an early-mover advantage in an industry with high growth potential.
In addition, Li-Cycle Holdings is involved in lithium-ion battery resource recovery recycling. It goes without saying that as the global market for EVs swells, the battery materials feed-stock will increase. With strategically located spokes and industry partnerships, Li-Cycle is expected to benefit. Plus, the company’s Rochester Hub is under construction for battery recycling. Commissioning towards the end of 2023 will be a key catalyst for LICY stock upside. It’s worth noting that Li-Cycle is expanding it’s spoke network in North America and Europe. Therefore, the addressable market for feedstock is significant.
From a financial perspective, the company reported cash and equivalents of $409.2 million as of March. This provides ample flexibility to invest in completion of the Rochester Hub.
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) is one of my favorite penny stocks. At the moment, the gold miner trades at an attractive forward price-earnings ratio of 13.2. Further, KGC stock offers a dividend yield of 2.48% and I believe that dividend growth is on the cards.
The first reason to be positive is fundamentals. As of Q1 2023, Kinross reported $1.7 billion in liquidity. Further, the company reported healthy operating cash flows of $259 million for the quarter. The company therefore has ample flexibility for capital investments and dividends.
In addition, it’s worth noting that Newmont (NYSE:NEM) recently acquired Newcrest Mining (OTCMKTS:NCMGY). Barrick Gold (NYSE:GOLD) is also hunting for acquisitions. With an investment grade balance sheet, Kinross can potentially pursue acquisition driven growth. Currently, the company has guided for stable production through 2025. I also believe that gold is poised for a breakout to new highs. Central banks have been accumulating gold for reserves diversification. Kinross is possibly positioned for sustained upside in free cash flows.
Diana Shipping (DSX)
Diana Shipping (NYSE:DSX) is among the best penny stocks to buy that’s also massively undervalued. At a forward price-earnings ratio of 7.6, the stock can potentially double in the next 12 to 18 months. DSX stock also offers an attractive dividend yield of 22.65%.
One reason for the stock being undervalued is debt. As of Q1 2023, the dry bulk shipping company reported total debt of $630 million. High debt for a small-cap stock is adjusted in the valuation. However, it’s important to note that for Q1, the company reported time charter equivalent rate of $18,503. For the same period, the company’s daily vessel operating expense was $5,396. Time charter rates have therefore been attractive and this has translated into decent operating cash flows.
Debt servicing is unlikely to be a concern. At the same time, the company has reduced debt on a quarter-on-quarter basis. Continued deleveraging is likely to translate into better credit metrics and DSX stock trending higher.
Polestar Automotive (PSNY)
Among EV penny stocks, I find Polestar Automotive (NASDAQ:PSNY) to be attractively valued. From a 52-week high of $13.4, PSNY stock has slumped to current levels of $3.3. Even after discounting some negative news in the recent past, the stock is massively undervalued.
One reason for the recent correction is delay in production of Polestar 3 to Q1 2024. However, it’s worth noting that production of Polestar 3 and 4 will now commence almost at the same time. If macroeconomic conditions turn favorable, Polestar is positioned for robust deliveries growth in the coming year.
Another point to note is that the management is focused on cost cutting. The initiatives include headcount reduction and operational efficiencies. The potential narrowing of EBITDA level losses is a catalyst for stock upside. I expect Polestar to dilute equity in the coming quarters. However, that’s unlikely to be a concern if the outlook for the coming year is positive.
Bitfarms (BITF)
I would hold a crypto stock among the most undervalued penny stocks. If Bitcoin (BTC-USD) remains in an uptrend, several miners are poised for multibagger returns. Bitfarms (NASDAQ:BITF) stock looks significantly undervalued even after an upside of 162% for year-to-date 2023.
One reason to be bullish is sustained expansion in mining capacity. As of May, the company’s capacity was 5EH/s and Bitfarms expects to expand capacity to 6EH/s by Q3 2023. I believe that expansion is likely to be aggressive if Bitcoin surges from current levels. Bitfarms is also a low-cost miner with production cost of $12,500 per Bitcoin in Q1 2023. Assuming a scenario where Bitcoin trades above $50,000, EBITDA margin expansion is likely to be robust. I am bullish on the crypto trending higher with Bitcoin halving due in 2024.
As of May 2023, Bitfarms reported $41 million in liquidity buffer and a significantly reduced total debt of $17 million. A strong balance sheet provides ample headroom for growth investments.
| NAT | Nordic American Tanker | $3.64 |
| CRON | Cronos Group | $1.70 |
| LICY | Li-Cycle Holdings | $5.28 |
| KGC | Kinross Gold | $4.82 |
| DSX | Diana Shipping | $4.12 |
| PSNY | Polestar Automotive | $3.33 |
| BITF | Bitfarms | $1.13 |
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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.