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3 Overlooked Penny Stocks That Could Be the Next Big Thing

During the penny stocks euphoria in 2021, these stocks were largely linked to speculative activity. It’s, however, a myth that penny stocks are nothing beyond trading or speculating bets. There are exciting stories among low-priced stocks that can become big in the coming years. Therefore, I would pursue deeper research into some of the overlooked penny stocks for potential multibagger returns.

I have used two basic screeners to identify the penny stocks. First and foremost, these stocks represent companies with a sound business model. Furthermore, these businesses operate in sectors with positive tailwinds throughout the decade. As the industry size swells, these companies are positioned to make it big.

However, it’s important to limit exposure to these overlooked penny stocks to 10% to 15% of the portfolio. That seems sufficient considering the current macroeconomic environment.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

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Let’s discuss the reasons to be bullish on these penny stocks.

Ticker

Company

Price

KGC

Kinross Gold

$3.86

SLDP

Solid Power

$3.57

PSNY

Polestar Automotive

$5.38

Kinross Gold (KGC)

Cellphone with business logo of Canadian mining company Kinross Gold Corp. on screen in front of webpage.
Cellphone with business logo of Canadian mining company Kinross Gold Corp. on screen in front of webpage.

Source: T. Schneider / Shutterstock.com

With the possibility of a recession in 2023, the dollar has weakened. Further, factors such as inflation and geopolitical tensions will support gold prices. I see the precious metal trading significantly higher in the coming years.

Kinross Gold (NYSE:KGC) stock is possibly the best pick among penny gold mining stocks. At a forward price-earnings ratio of 18.5, KGC stock looks attractive. Additionally, the stock has a dividend yield of 3.0% and dividends are sustainable.

In terms of positives, Kinross reported a liquidity buffer of $1.8 billion as of 2022. The company has ample financial flexibility to pursue potential acquisitions. Kinross will target buying assets to offset the impact of the asset sale in Russia and Ghana in 2022.

It’s also worth noting that Kinross has guided for stable gold production through 2025. For Q4 2022, the company reported a free cash flow of $157.5 million. This implies an annualized FCF potential of over $500 million. With these fundamentals, KGC stock looks undervalued and poised for a meaningful rally.

Solid Power (SLDP)

Smartphone with logo of American battery company Solid Power Inc. on screen in front of business website. Focus on center-left of phone display.
Smartphone with logo of American battery company Solid Power Inc. on screen in front of business website. Focus on center-left of phone display.

Source: T. Schneider / Shutterstock.com

The “if” factor is the commercialization of solid-state batteries. If Solid Power (NASDAQ:SLDP) is successful, SLDP stock will deliver multibagger returns. The good news is that the development seems to be progressing in the right direction.

In December 2022, the company signed an expanded research and development deal with BMW (OTCMKTS:BMWYY). Under this deal, Solid Power will license the cell design and manufacturing process to BMW. This could help in speeding up R & D activities.

It’s worth noting that the company’s EV cell pilot line has already commenced production. Solid Power will be delivering EV cells to Ford (NYSE:F) and BMW for validation testing in 2023. This is another impending catalyst for the stock.

From a financial perspective, Solid Power reported a liquidity buffer of $507.6 million as of September 2022. With the backing of major automotive partners, I don’t see financial constraints to the commercialization of solid-state batteries.

Polestar Automotive (PSNY)

PSNY stock: Polestar EV store. Electric car and Chinese customer in store. Polestar is a Swedish automotive brand owned by Volvo Cars and Geely (GGPI)
PSNY stock: Polestar EV store. Electric car and Chinese customer in store. Polestar is a Swedish automotive brand owned by Volvo Cars and Geely (GGPI)

Source: Robert Way / Shutterstock.com

Polestar Automotive (NASDAQ:PSNY) stock trades just above $5 and is among the overlooked penny stocks to buy. The manufacturer of electric vehicles had a strong listing last year at $13.3. However, with broad sentiments turning negative, PSNY stock has been in a correction mode.

Having said that, the business developments are encouraging. Last year, Polestar delivered 51,500 cars, which was higher by 80% on a year-on-year basis. For 2023, the company has guided the delivery of 80,000 cars. I expect the strong delivery growth momentum to sustain beyond 2023.

One reason to be bullish is a strong product pipeline. Polestar 4 and 5 are scheduled for launch in 2023 and 2024, respectively. Further, Polestar 6 will be launched in 2026. Polestar has also been increasing its global presence and is selling in 27 countries. With a big addressable market, growth is likely to remain strong.

The company’s operating level losses widened last year on a year-on-year basis. However, that’s not a concern for an early-stage company. Polestar is fully financed through 2023. I expect the EBITDA margin to improve meaningfully with operating leverage in the next few years.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks. 

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.

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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