Penny stocks can be portfolio game changers even with a 10% to 15% allocation. The reason is that 5x or 10x returns in relatively quick time is not an unrealistic expectation. Of course, the ideas need to be well researched and the bullish thesis must be backed by fundamentals rather than being purely speculative.
Around this time last year, Riot Platforms (NASDAQ:RIOT) stock was trading at $4.2. RIOT stock is already higher by 250% from those levels. Similarly, Archer Aviation (NYSE:ACHR) stock has surged by 157% in the last 12 months. Further, these stores have more juice in the rally for the year.
The focus of this column is on quality penny stock picks that can deliver 5x to 10x returns in the next three to five years. When I say five years, it’s a conservative estimate for a penny stock. Let’s discuss the reasons to be positive on these potential multibagger names.
Penny Stocks: Cronos (CRON)
Cronos (NASDAQ:CRON) stock trades at $2.2 and has trended higher by 11% in the last six months. After an extended period of correction, it finally seems that CRON stock is poised for a sustained reversal. On a conservative basis, I would expect the stock to trade in the range of $10 to $15 in the next three years.
Cronos has a cash glut and that’s one reason to like the cannabis stock. With $840 million in cash and equivalents, the company is in a wait-and-watch mode. Any potential catalyst like legalization would translate into big investments from Cronos.
Further, Cronos is making inroads in the global medicinal cannabis business. In September, the company commenced shipment of medicinal cannabis to its German distribution partner, Cansativa GmbH. Cronos is also shipping cannabis to Vitura Health Limited for sale in the Australian medical market. With market expansion and gradual improvement in adjusted EBITDA, CRON stock seems poised to skyrocket.
Polestar Automotive (PSNY)
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Among the emerging electric vehicle companies, I believe that Polestar Automotive (NASDAQ:PSNY) is likely to survive and grow. Of course, it’s a high-risk bet, but if there is a sharp turnaround, PSNY stock is likely to be an easy five-bagger from current levels of $2.1.
The biggest reason to be bullish is the point that Polestar expects cash flow break-even in 2025. This seems likely with cost cutting coupled with operating leverage. Polestar 4 has already been launched and the launch of Polestar 5 is due this year. These two models will ensure that deliveries growth accelerates.
Further, the company has guided for deliveries growth from 60,000 in 2023 to 160,000 cars by 2025. It’s worth noting that Polestar reported a liquidity buffer of $951 million as of Q3 2023. This will suffice for the cash burn in the coming quarters. With these positives, PSNY stock seems to be trading at a valuation gap.
Archer Aviation (ACHR)
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Archer Aviation stock trades marginally above $5, but I am tempted to talk about the story with high potential. To put things into perspective, the global flying car market is likely to be worth $9 trillion by 2050. The industry is still at a nascent stage of growth and some of the early movers can be massive value creators. I believe that ACHR stock can be a possibly millionaire-maker in the next five years.
The first point to note is that with Federal Aviation Authority certifications on-track, commercialization of eVTOL is coming in 2025. However, it does not imply that growth will be stellar at the onset. Having said that, Archer is preparing a strong base for take-off. The company has already formed a partnership in UAE and India for launch of operations in 2026.
Additionally, Archer has a backlog of $142 million from the U.S. Air Force. In November, the company won contracts worth $500 million from Air Chateau International. With the order backlog swelling, I expect healthy growth through the decade. ACHR stock seems to be in a correction and consolidation mode before the next surge.
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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