The moves seen in many penny stocks can be extraordinary. The short-term moves made in these low-market capitalization companies can provide those with a higher risk tolerance with greater returns. Thus, despite current macroeconomic challenges, there are penny stocks to watch for potential catalysts.
Among penny stocks, there are plenty of speculative rallies to speak of. Personally, I would avoid such “story stocks,” particularly considering current market conditions. At the same time, there are sharp rallies backed by real news. These are the penny stocks to watch.
A good example is Borr Drilling (NYSE:BORR). In the last six months, BORR stock has surged by 97%. The catalyst for this move has been strong order inflows. Accordingly, it’s clear some fundamental-driven rallies are worth considering, as extraordinary returns can take place, even in a market such as this.
The focus of this column is on similar penny stocks that have significant catalysts worth considering. In my view, these penny stocks have the potential to deliver 100% returns within the next six months.
Investors can feel more assured owning these penny stocks as they represent companies with decent business fundamentals. Even beyond a short-term time horizon, these stocks might be worth holding.
Let’s discuss the possible news catalyst likely to trigger a significant rally for these stocks.
Snow Lake Resources
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) has been in the news plenty of late, and the stock has increased by 27% year-to-date, at the time of writing. However, I believe that major upcoming catalysts will trigger a more significant rally.
I want to mention that Needham recently rated Solid Power as its best bet on EV solid-state batteries. Needham has also reinstated a price target of $5 for the stock. This would imply an upside potential of 67% from its current level, around $3 per share.
Solid Power has already initiated its pilot line for the production of solid-state EV cells. These EV cells will be delivered to automotive partners for validation testing. This is an upcoming catalyst that’s likely to play out in the next few months. Positive feedback from automotive majors on EV cells is a more significant stock upside catalyst.
SLDP stock might be a penny stock. However, the company has the backing of automotive majors, including BMW(OTCMKTS:BMWYY) and Ford (NYSE:F). The stock is, therefore, far from being a speculative name.
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Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock is another undervalued name among penny stocks. I believe a few potential catalysts can take PSNY stock significantly higher than its current level of $4.50 per share.
First and foremost, Polestar is exploring equity or debt fundraising opportunities. News on that front would be positive, implying that the company is fully-financed for the next 24 months.
Furthermore, Polestar was depressed in 2022 as operating losses widened. However, the company has guided for robust year-on-year delivery growth of 60%. Thus, the company’s critical margins will likely improve. This will boost PSNY stock.
It’s also worth noting that the company has been on track regarding new model launches. With Polestar 4 launch during the year, it’s likely to set the stage for sustained delivery growth in 2024.
Considering these factors, I expect a strong rally for PSNY stock in the coming quarters. I would not be surprised if the stock trades in the double-digit range toward the end of the year.
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Bitcoin (BTC-USD) has witnessed a meaningful reversal from the lows of 2022. This has translated into a strong rally for Bitcoin mining stocks. However, these stocks remain massively undervalued. Indeed, Bitfarms (NASDAQ:BITF) has surged by 90% for year-to-date 2023. I expect the uptrend to sustain, considering several factors.
First, I think that there is a strong likelihood that so-called crypto winter is over. Even if Bitcoin trades around $30,000 in the next two quarters, Bitcoin mining stocks can double from current levels. Further, a Bitcoin halving is due in 2024, which will likely ensure that the uptrend for the cryptocurrency sustains.
Specific to Bitfarms, business developments have been positive, which is likely to translate into a sustained rally. As of February 2022, the company had reported a mining capacity of 2.3EH/s. The company’s capacity has since increased to 4.7EH/s as of February 2023. Robust growth in capacity has translated into swelling digital assets.
It’s worth noting that Bitfarms reported an adjusted EBITDA margin of 31% for Q3 2022. Even in challenging times, the company’s margin was healthy due to low production costs. With Bitcoin trending higher, significant EBITDA margin expansion is due in the coming quarters. This is another potential upside catalyst for the stock.
Cronos Group (CRON)
Cronos Group (NASDAQ: CRON) stock has been downtrend, now trading below $2. That said, CRON stock seems significantly undervalued with an important potential catalyst, in the form of federal legalization of cannabis.
To put things into perspective, Cronos ended 2022 with cash and short-term investments of $878 million. Currently, the market values the company at $750 million. Thus, this is a stock that’s valued at roughly its cash levels. Additionally, Cronos’ strong cash buffer gives the company ample headroom for organic and acquisition-driven growth.
For the last financial year, there were two positives in terms of results. First, Cronos reported revenue growth of 23% on a year-on-year basis. (I think the company is positioned for revenue growth above 50% in a legalization scenario). Furthermore, adjusted EBITDA losses narrowed significantly due cost-cutting and improving operating leverage.
With a presence in key markets and exposure to the medicinal and recreational cannabis business, Cronos looks attractive. The company also has strong backing from Altria (NYSE:MO).
Kinross Gold (KGC)
Kinross Gold (NYSE:KGC) is a dark horse among penny stocks. With the fed maintaining an aggressive stance on interest rates, gold has witnessed a meaningful correction of late.
However, JPMorgan (NYSE:JPM) expects a recession in the U.S. in the second half of 2023. The base case prediction for many top banks is now leaning toward a hard landing. Thus, the dollar will likely weaken significantly in such a scenario, and I expect a strong rally for gold.
Kinross Gold seems deeply undervalued and can easily double from current levels. KGC stock trades at a forward price-earnings ratio of 12.9-times and offers an attractive dividend yield of 3.5%.
It’s worth noting that for Q4 2022, the company reported free cash flow of $157.5 million. If gold trends higher, the company will be well-positioned for significant cash flow growth. This will translate into dividend growth and a stock re-rating higher, in all likelihood.
Kinross Gold has a strong balance sheet with a total liquidity buffer of $1.8 billion. The possibility of future acquisitions after assets sale in 2022 (due to geopolitical reasons) is another stock upside catalyst to consider.
Snow Lake Resources (LITM)
Source: Bjoern Wylezich/ShutterStock.com
After a correction of 66% over the last 12 months, Snow Lake Resources (NASDAQ:LITM) stock has been consolidating around current levels. Considering the company’s potential asset base, I believe that a breakout to the upside is in order.
As an overview, Snow Lake holds 59,587 acres of prospective acreage for lithium development. The company continues to evaluate merger and acquisition opportunities to expand its portfolio. Any potential news on this front will be a catalyst for a meaningful stock reversal.
Another critical catalyst that could take LITM stock higher is the company’s exploration drilling on high-priority targets. There will likely be precise estimates of the potential lithium reserves in the coming quarters. This will directly impact the company’s valuation, as the net present value of its assets swells.
Of course, the actual development of the company’s prospective lithium mines is still a few years away. However, exploration activity and possible supply-chain agreements with lithium consumers will be catalysts to watch through 2023.
Tilray Brands (TLRY)
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Tilray Brands (NASDAQ:TLRY) is among the deeply undervalued cannabis stocks I think are worth considering. Like Cronos, Tilray would be a key beneficiary of any news on the legalization front at the federal level in the U.S.
However, even if we leave that catalyst aside, Tilray has demonstrated improving business fundamentals. The company’s upcoming quarterly earnings report will be a potential trigger for the TLRY stock.
From a financial perspective, there are two key factors to watch. First, the company reported positive operating and free cash flows for Q2 2023. Cash flows are likely to swell further in the coming quarter. This will help in boosting the company’s financial flexibility.
The company has acquired two brewing companies in the United States in the last six months. In Q2 2023, the company reported alcohol sales growth of 56% on a year-on-year basis to $21.4 million. This segment’s growth is likely to sustain.
Additionally, Tilray reported cash and marketable securities of $433.5 million as of Q2. Given the company’s track record of acquisitions, further inorganic growth seems likely. That’s another catalyst for stock upside.
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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.
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.