The iShares Micro Cap ETF (NYSEARCA:IWC) has declined by 19% year-to-date. However, several penny stocks have witnessed a correction of more than 50% in the last two quarters. Every correction provides investors with a medium to long-term entry opportunity. There are penny stocks trading at a discount that are worth considering at current levels.
The dismal performance of penny stocks in the first half of 2022 is not surprising with factors like contractionary monetary policies and economic slowdown translating into a broad market sell-off. The correction has been bigger for high-beta penny stocks.
Investors need to tone down their expectations when it comes to penny stocks. Multi-fold returns in a few months are unlikely. However, penny stocks trading at a discount can deliver returns that comfortably beat the index.
The Mullen Five vehicle is displayed at the 2021 LA Auto Show media day in Los Angeles, November, 18, 2021. MULN stock.
Source: Ringo Chiu / Shutterstock
Mullen Automotive (NASDAQ:MULN) stock has remained in a downtrend. However, there seems to be ample positive developments to trigger a sharp reversal rally for this massively undervalued penny stock.
In July 2022, Mullen announced that the company has signed an agreement with Amazon’s (NASDAQ:AMZN) delivery partner for electric vehicle cargo vans. Mullen will be delivering 600 EV cargo vans over the next 18 months. The backlog might be slim, but the business seems to be moving in the right direction.
Mullen has also made positive progress related to its solid-state polymer battery cell. Further developments on this front is likely to translate into a meaningful rally for MULN stock.
Another point worth noting is that the company has a healthy balance sheet. With an agreement to secure $275 million in additional funding, there is financial flexibility to invest in product development.
Hive Blockchain (HIVE)
HIVE Blockchain Technologies logo over a map of the world. HIVE stock.
Source: karnoff / Shutterstock
Bitcoin (BTC-USD) has recovered marginally from recent lows. If the recovery sustains, crypto stocks are positioned for a big rally. Among penny stocks trading at a discount, Hive Blockchain (NASDAQ:HIVE) looks attractive.
For the year ended March 2022, Hive reported revenue of $211 million. On a year-on-year basis, revenue surged by 212%. This growth was driven by a 545% and 225% upside in Bitcoin and Ethereum (ETH-USD) mining respectively.
With $170 million in digital assets as of March 2022, Hive Blockchain is well positioned from a financial perspective. Of course, margins are likely to be impacted with the steep correction in cryptocurrencies. However, the long-term outlook remains positive for this diversified mining company.
It’s also worth noting that the upside in Bitcoin hash rate will sustain through December 2022. This increases the potential number of Bitcoin mined through the year. Overall, Hive looks attractive with growth in mining capacity coupled with strategic investments in decentralized finance and non-fungible tokens.
Borr Drilling (BORR)
a picture of an oil rig in the middle of the ocean on a cloudy day
Source: Shutterstock
With the surge in oil price, Borr Drilling (NYSE:BORR) stock had surged to highs of $6.96. However, there have been a deep correction and BORR stock has seen prices dip below $2.50 recently. The correction provides a good entry opportunity.
One reason for the correction is the decline in oil price due to recession fears. Further, Borr was in negotiation with creditors for a refinancing deal, and that made investors jittery.
However, the company has refinanced all secured debt with extended maturity till 2025. At the same time, it seems unlikely that there will be a big correction in oil. The geo-political risk premium will ensure that the offshore drilling rig services market remains strong.
Equity dilution also seems to be on the cards for Borr Drilling. With a sharp downside, the concern is discounted in the stock. Contracted rigs provide revenue visibility, and there is scope for upside in cash flows from rigs under construction. At current levels, I am therefore bullish on BORR stock.
Tilray (TLRY)
Closeup of mobile phone screen with logo lettering of cannabinoid company tilray cannabis, blurred marijuana and pipette background
Source: Ralf Liebhold / Shutterstock.com
Regulatory headwinds have translated into slower than expected growth for cannabis companies.
It finally seems that there is some good news for the industry, though, with Senate Democrats introducing a legalization bill. If there is progress on this front, Tilray (NASDAQ:TLRY) stock might be positioned for multi-fold returns.
Tilray already has a target of clocking $4 billion in revenue by 2024. The company plans to achieve this through organic growth and acquisitions. With presence in all major cannabis markets, the company seems attractive at its current price.
I also like the fact that Tilray has focused on evidence-based medicinal cannabis. This might open-up a big market in the next few years. At the same time, the company is a Canadian market leader in recreational cannabis.
Tilray has also been reporting positive adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) on a consistent basis. With sales growth, it seems likely that EBITDA margin will expand. This would be particularly true if there is strong acceleration in the medicinal cannabis segment.
Kinross Gold (KGC)
Cellphone with business logo of Canadian mining company Kinross Gold Corp. on screen in front of webpage.
Source: T. Schneider / Shutterstock.com
So far this year, Kinross Gold (NYSE:KGC) stock has slumped by 42%. A combination of factors has contributed to the decline in KGC stock. However, there seems to be value with the penny stock trading at a forward price-to-earnings ratio of 8.7.
With the sale of Russian assets and a revised production guidance for 2022, the stock sentiment was negatively impacted. Some correction in gold has also contributed to the decline.
However, Kinross Gold has strong financial flexibility from asset sales and is well positioned to invest in organic and inorganic growth. It’s also worth noting that a big correction in gold seems unlikely considering the factors of geo-political tensions and a possible recession.
Another important point to note is that Kinross has guided for sustained free cash flows, even with a relatively lower production guidance for 2022. Once gold trends higher, the company’s credit metrics will improve. At the same time, there is visibility for dividend growth beyond 2022.
Electrameccanica Vehicles (SOLO)
The Solo vehicle from Electra Meccanica Vehicles (
Source: Luis War / Shutterstock.com
Electrameccanica (NASDAQ:SOLO) stock trades near 52-week lows, and it’s a good time to consider some exposure.
As an overview, the company is a manufacturer of a single-seat electric vehicle called the Solo. The car is being delivered to customers since October 2021. Besides urban commute, the Solo car is also being marketed for shared fleets and cargo delivery. Therefore, there is a big addressable market.
Currently, the company has an asset-light model with production being outsourced to Zongshen Industrial Group. However, a U.S. assembly facility is scheduled to be commissioned.
From a financial perspective, the company reported $195 million in cash and $3 million in debt. Therefore, there is ample financial flexibility to pursue growth. With the SOLO car price being a key differentiating factor, there seems to be scope for scaling-up. Further, a few big contracts related to cargo delivery can be a game-changer.
Uranium Energy (UEC)
periodic table concept with black cubes. uranium element is glowing
Source: Shutterstock
Another penny stock that trades at a discount and seems poised for a rally is Uranium Energy (NYSEAMERICAN:UEC). The stock has spent much of 2022 sideways and is currently up 18%. A further breakout seems likely after this phase of consolidation.
In terms of uranium assets, the company currently has 5 million pounds of physical uranium. Further, considering the company’s mining assets, there is production visibility for 6.5 million pounds of tri-uranium oxide annually. Clearly, UEC stock looks undervalued considering the long-term cash flow potential.
Uranium Energy also believes that there is likely to be a sustained demand-supply mismatch in the U.S. This will ensure that uranium price remains firm and the margins are healthy.
From a financial perspective, Uranium Energy reported cash and equivalents of $182 million. With no debt on the balance sheet, there is ample financial flexibility to pursue aggressive growth.
In 2022, the company acquired Uranium One for a consideration of $112 million. Further acquisitions are likely considering the balance sheet strength.
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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.comPublishing Guidelines.
