With an ocean of listed companies in various stocks exchanges in the United States, it’s not surprising that a few gems are not in the limelight. Further, there are stories that are ignored by the market due to near term headwinds, but hold immense potential for the long term. This would be the broad classification of sleeper stocks. As I screen for ideas that offer value, there are several undervalued sleeper stocks to discuss.
This column focuses on seven names that are potential multibagger ideas with a time horizon of five years. My focus is largely on the growth stocks space as blue-chips are generally in the radar of market participants. Backed by good businesses and positive industry tailwinds, I believe that the sleeper stocks discussed are poised for healthy revenue and earnings growth.
Let’s discuss the reasons to be bullish on these undervalued sleeper stocks.
Aker BP ASA (AKRBF)
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Aker BP ASA (OTCMKTS:AKRBF) is a gem from the oil and gas sector that remains ignored as it’s listed on the OTC exchange. The 8.13% dividend yield stock trades at attractive valuations and has quality assets that provide long term cash flow visibility.
As an overview, Aker BP is focused on oil and gas assets in the Norwegian Continental Shelf. As of December 2022, the Company had 1.86 billion barrels of oil equivalent in 2P reserves. Further, the Company has 844 million barrels of oil equivalent in contingent resources.
It’s important to note that the Company has low break-even assets. This translates into healthy operating cash flow even if oil trades at $70 to $80 per barrel. To put things into perspective, the Company’s portfolio has a break-even of $35 to $40 per barrel.
In the past, Aker BP has grown through mergers and acquisitions. With $6.8 billion in liquidity buffer and a leverage ratio of 0.19, the Company has ample flexibility to pursue aggressive exploration and potential asset acquisitions.
Lundin Gold (LUGDF)
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Lundin Gold (OTCMKTS:LUGDF) is yet another OTC exchange listed stock that deserves a place in the portfolio. In the last 12 months, LUGDF stock has remained sideways. However, with positive business developments, I expect a breakout on the upside for this 3.63% dividend yield stock.
Currently, Lundin Gold has reserves of 5 million ounces with resources of 9.2 million ounces. While the Company’s mine life is 11 years, reserve replacement remains robust. This provides long term production and cash flow visibility.
Another important point to note is that Lundin reported an all-in-sustaining-cost of $807 an ounce for year-to-date. With gold trading above $2,000 an ounce, the Company is positioned for robust free cash flows. The AISC is guided to reduce further by 2026.
Besides the reduction in cost and production upside, the outlook for gold is bullish. Factors of potential rate cuts and geopolitical tensions will ensure that the precious metal trends higher. This will translate into healthy dividend growth.
Curaleaf Holdings (CURLF)
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Let’s talk about another OTC name before I discuss undervalued sleeper stocks from the main exchanges. Curaleaf Holdings (OTCMKTS:CURLF) stock is an attractive name among cannabis stories with long term value creation potential.
For Q3 2023, Curaleaf reported revenue growth of 2% on a year-on-year basis to $333 million. Growth has been muted and the story does not seem exciting. However, it’s worth pointing out that Curaleaf reported adjusted EBITDA margin of 23% for the quarter. This is at a time when most emerging cannabis companies are moving towards adjusted EBITDA break-even.
Further, Curaleaf is pursuing aggressive expansion outside North America. For Q3, the Company reported 120% year-on-year growth in international cannabis revenue to $16 million. With expansion in the medicinal cannabis market in Europe, I expect revenue growth acceleration in the next few years.
I must add that Curaleaf is focused on R&D driven growth. In 2022, the Company launched 171 new products. New launches coupled with evidence backed medicinal cannabis business will serve as a major growth catalyst.
Amdocs Limited (DOX)
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Amdocs Limited (NASDAQ:DOX) is talked about rarely when the discussion is on hot technology stocks. I however believe that the story has immense potential and DOX stock is undervalued. I would not hesitate is considering some exposure to the stock that trades at a forward price-earnings ratio of 13.8. Further, the stock offers a dividend yield of 1.93%.
Amdocs is in the business of providing software the services to the media and telecommunication industry globally. In the telecommunication segment, the wider adoption of 5G is a key growth driver. Amdocs is a provider of 5G monetization and network automation. By 2025, the Company expects the serviceable addressable market to be worth $57 billion. This provides ample headroom for aggressive growth.
Amdocs is also focusing on AI technology to driven growth and innovation. In the last financial year, the Company launched Amdocs amAIz “a cutting-edge, enterprise-grade generative AI (GenAI) framework. With presence in the right markets and healthy free cash flows, Amdocs is positioned to be a value creator.
Lithium Americas (LAC)
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I would not say that Lithium Americas (NYSE:LAC) stock is an under-the-radar name. However, LAC stock has been ignored by investors with the big plunge in lithium prices. I consider this as a golden opportunity to accumulate for the long term.
It’s worth noting that Lithium Americas commands a market valuation of $840 million. In comparison, the Company’s Thacker Pass project has an after-tax net present value of $5.7 billion. With a mine life of 40 years and an average annual EBITDA visibility of $1.1 billion, the asset is a cash flow machine.
An important point to note is that the asset is financed for construction. This includes an investment of $650 million in two tranches from General Motors (NYSE:GM). Once production commences, LAC stock is likely to skyrocket. It’s just a matter of holding with patience for potential 5x to 10x returns in the next five years.
Leonardo DRS (DRS)
Leonardo DRS (NASDAQ:DRS) is among the lesser known defense stocks as it’s an emerging player. The business however holds potential and DRS stock looks attractive at a forward price-earnings ratio of 26.6.
As an overview, Leonardo DRS is a provider of defense products and technologies. This includes advance sensing, network computing, and force protection. As of Q3 2023, Leonardo reported an order backlog of $4.7 billion, which was higher by 50% on a year-on-year basis.
Recently, the Company was awarded orders worth $3 billion to provide integrated electric propulsion system products for the U.S. Navy’s Columbia-class submarines. This is a big addition to the backlog and will boost the revenue growth and cash flow visibility. Further, with heightened geopolitical tensions, I expect order intake to remain robust.
The Company has also indicated potential merger and acquisitions as a growth strategy. With a strong balance sheet, possible acquisitions can boost the product and services portfolio coupled with the growth outlook.
Hecla Mining (HL)
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Hecla Mining (NYSE:HL) is the largest silver miner in the United States. HL stock looks attractive with the possibility of a meaningful rally for precious metals. Besides silver, Hecla also has gold assets and the Company is positioned for healthy production growth.
For 2023, Hecla announced silver production of 14.3 million ounces. On a year-on-year basis, silver production was flat. This was largely due to the temporary suspension of mining activity at Lucky Friday. However, Hecla has guided to increase silver production to 20 million ounces by 2025. If this is associated with higher price realization, the Company will report strong cash flows.
My view on EBITDA margin expansion and healthy cash flows is underscored by the fact that Hecla has the among lowest all-in-sustaining-cost compared to peers. Cash flow upside will also set stage for healthy increase in dividends in the next 24 months.
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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