The 2021 phase of euphoria in meme stocks and penny stocks will be remembered in the history of financial markets. In particular, stocks under $10 were the target of social media driven euphoria and surge. Multi-fold returns came at the blink of an eye.
However, in the first two months of 2022, the markets have faced challenges on multiple fronts. With high inflation and fear of multiple rate-hikes, the markets are discounting the liquidity tightening factor. Further, rise in geo-political tensions have added to the nervousness.
However, I believe that there are several factors to believe that the market correction might be capped. First, even with multiple rate hikes, real interest rates will remain negative. This will attract funds towards risky asset classes like equities, commodities and cryptocurrency.
Therefore, any correction in large-cap or small-cap stocks provides investors with an attractive entry opportunity. My focus in this column is on stocks under $10. These are relatively small companies that have positive tailwinds. I believe that these stocks can potentially double in the next 12 months.
It’s important to mention here that as global liquidity tightens, investors need to tone down their expectations. The euphoric phase of multi-fold returns in meme stocks is unlikely in 2022. In small-cap names, returns of 50% to 100% is likely to be considered good.
Let’s therefore talk about seven stocks under $10 that can double in the next few quarters:
- Kinross Gold (NYSE:KGC)
- Hut 8 Mining (NASDAQ:HUT)
- Arrival (NASDAQ:ARVL)
- Transocean (NYSE:RIG)
- Standard Lithium (NYSEAMERICAN:SLI)
- Skillz (NYSE:SKLZ)
- EVgo (NASDAQ:EVGO)
Kinross Gold (KGC)
Even with prospects of multiple rate hikes in 2022, gold has remained resilient above $1,800. With inflation being a concern globally, it’s likely that funds will flow into hard assets like gold and silver. Among relatively smaller gold miners, Kinross Gold looks attractive.
KGC stock has been largely sideways in the last six months. However, with positive business developments, it’s likely that the stock will break-out on the upside.
For 2021, Kinross issued guidance for gold production of 2.1 million oz. However, production is expected to increase to 2.7 million oz and 2.9 million oz in the next two years. Therefore, even if gold price remains sideways, Kinross is positioned for revenue and cash flow upside.
It’s also worth noting that Kinross has a strong balance sheet. As of Q3 2021, the company reported a total liquidity buffer of $2.1 billion. With a low net-debt-to-EBITDA (earnings before interest, taxation, depreciation and amortization), the company is positioned to pursue aggressive organic and acquisition driven growth.
For 2020, Kinross had reported an all-in sustaining cost of less than $1,000 an ounce. Even if the AISC is in the broad range of $1,000 to $1,200 an ounce, the company is positioned to deliver healthy EBITDA margin and cash flows.
These factors make KGC stock attractive and worth considering at current levels. I will not be surprised if the stock doubles in the next 12-months.
Hut 8 Mining (HUT)
Bitcoin (BTC-USD) has been struggling since the beginning of 2022. It’s therefore not surprising that Bitcoin miners have trended lower. This is a good opportunity to accumulate. With wider adoption among masses and among institutional investors, the long-term outlook for Bitcoin remains positive.
HUT stock had traded at a high of $16.57 in November 2021. The stock has corrected to a Feb. 17 opening price of $6.97. Considering the Bitcoin mining expansion plans, the stock is an attractive buy.
From a growth perspective, Hut 8 had an installed capacity of 1.7 EH/s as of Q3 2021. The company’s contracted capacity currently stands at 4.5 EH/s. Therefore, there is scope for significant growth in revenue and EBITDA once all miners are deployed. The company currently has over 5,000 Bitcoins in reserve. This gives ample financial flexibility for further expansion.
It’s worth noting that for Q3 2021, the company reported revenue of $50.3 million. Further, the company reported a healthy adjusted EBITDA of $30.7 million. Once the entire contracted capacity is deployed, Hut 8 is positioned for quarterly revenue in the range of $125 to $150 million. Even if EBITDA margin remains around current levels, the company is positioned to deliver healthy cash flows.
HUT stock is therefore attractive, and I believe that the stock can double if Bitcoin trends above $60,000 in the coming quarters.
Commercial electric vehicle segment also has big growth potential in the long-term. One name in commercial EV that looks attractive after a deep correction is ARVL stock.
In the bus segment, Arrival has already passed the phase of bus trial production and ground trials. Certification and public road trial is due for the current quarter. In the van segment, product certification is due for Q2 2022.
The company is also building two micro-factories in the U.S. and one in the U.K. All these micro-factories will commence production in the current year. The company expects to incur a capital expenditure of $50 million for each micro-factory. This will allow Arrival to have manufacturing in multiple geographies without significant investments.
Arrival and Uber (NYSE:UBER) are also collaborating on an electric car for the ride-hailing industry. Therefore, Arrival already has some big clients. Once production and delivery commence, the stock is likely to trend higher.
Overall, ARVL stock looks attractive with positive business developments. I will not be surprised if the stock is back to double-digits in the next 12 months.
Crude oil price has been trending higher with several positive catalysts. Rise in geo-political tension, commodity driven acceleration and gradual recovery in global growth are some factors.
In general, offshore drilling has a higher break-even as compared to onshore. Therefore, offshore oil and gas projects gain traction when oil is firm at higher levels.
This is positive for Transocean, which provides offshore drilling rigs. Currently, the company has a fleet of 39 floaters suited for ultra-deep water and harsh environment. The company’s rig fleet has an order backlog of $7.1 billion. With the backlog being front-end loaded, there is clear revenue visibility.
A more important point to note is that day-rates have been gradually improving with oil trending higher. New contracts for the company’s rigs will have a higher day-rate and EBITDA potential.
Therefore, Transocean is positioned for gradual improvement in cash flows. It’s also worth noting that as of Q3 2021, the company reported a liquidity buffer of $2.7 billion.
This implies that the company is fully financed for the next 24 months. Even with the capital expenditure and debt repayments, Transocean expects to maintain a liquidity buffer of $1.8 to $2 billion by the end of 2022.
RIG stock has been sideways for the last 12 months. A strong break-out on the upside seems likely. Oil price and EBITDA margin expansion visibility are the key catalysts.
Standard Lithium (SLI)
After touching highs of $12.92 in October 2021, SLI stock has witnessed a meaningful correction and trades at $6.62. These are attractive exposure levels to a company that’s developing and processing lithium brine.
It’s expected that electric vehicles will account for 73% of lithium demand by 2030. With positive tailwinds for the EV industry globally, lithium price is likely to remain firm in the coming years. Standard Lithium is positioned to benefit from this secular trend.
Standard Lithium is invested in one of the largest lithium projects in the United States. The project has 3.14 million metric tons of indicated and 1.195 million metric tons of inferred resources.
Standard has a strategic partnership with Lanxess AG. The latter is the operator of the largest brine processing operations in North America. Standard has 30% stake in the project, which has an after-tax net present value of $989 million. Further, the Southwest Arkansas project has an after-tax NPV of $1.965 billion.
From a financial perspective, Standard Lithium seems to be well positioned. In December 2021, the company signed a $100 million direct investment deal with Koch Strategic Platforms. This will help the company invest in the Lanxess facility and the South West Arkansas lithium project.
Overall, SLI stock is among the top stocks under $10 to consider. Once the projects start delivering revenue and EBITDA, there is ample scope for value creation.
SKLZ stock is a contrarian bet at current levels of $4.33. After correcting by nearly 65% in the last six-months, the stock seems attractive.
While the stock has been punished due to growth concerns, the company has taken initiates to boost active user growth. In January, Skillz launched in India. With a population of 1.4 billion, the country has a big addressable market. It seems likely that Skillz will pursue further international expansion to boost active user growth.
Another important point to note is that Skillz has strong fundamentals. As of Q3 2021, the company reported $540.3 million in cash. In December 2021, the company raised $300 million from a senior note offering. Therefore, there is ample flexibility to invest in aggressive growth and product development.
Skillz is also looking at strategic investments and partnerships to boost growth. The strategic investment in Exit Games will allow the company to accelerate entry into several multiplayer game genres.
Skillz has also reported continued growth in average revenue per paying user. This has ensured healthy top-line growth even as total paying user growth remains relatively subdued. Once paying user growth accelerates, there is scope for meaningful improvement in EBITDA margin.
Overall, the downside risk seems capped for SKLZ stock. However, any turnaround in key metrics will be a catalyst for a big rally.
With multi-year tailwinds for the electric vehicle industry, another area that’s likely to grow fast is EV charging infrastructure. Without a proper charging infrastructure, it’s impossible to significantly ramp up EV adoption.
This factor makes EVGO stock attractive. In November 2021, the stock had surged to highs of nearly $20. I would not be surprised if those highs are re-tested in the coming quarters.
EVgo reported some healthy numbers for Q3 2021. With addition of 36,368 customer accounts during the quarter, the total customer accounts swelled to 310,000. The company already has an agreement with General Motors (NYSE:GM) for installation of 3,250 charging stalls by 2025.
Further, it’s worth noting that as of Q3 2021, the company’s active engineering and construction pipeline was 2,500 fast charging stalls. As these stalls are completed, there is ample scope for revenue growth.
As of September 2021, EVgo reported cash and equivalents of $520 million. There is ample financial flexibility to continue with aggressive network expansion. In the long-term, the outlook for cash flows is robust with growth in hardware revenue and software subscription revenue.
Overall, EVGO stock had touched lows of $7.08 in January 2022. The stock seems to have bottomed out and is trending higher again. There is opportunity for accumulation around $10 levels.
Originally published on InvestorPlace.com
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of 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 modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.