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With inflation and economic growth uncertainties, investors have shifted focus to blue-chip stocks. These are typically low-beta stocks and help preserve capital in volatile market conditions. However, it’s equally important to hold growth stocks in the portfolio. Within growth stocks, a part of the portfolio can be allocated towards penny stocks or stocks under $5.
Penny stocks witnessed big investor interest during the market rally after March 2020. However, these stocks have also seen a big sell-off on panic selling. There are stocks under $5 that seem to be purely speculative.
However, this article focuses on discussing stocks under $5 that have reasonable fundamentals and can double in one year. Few positive developments related to the company or industry can trigger a sharp rally in these stocks under $5.
Stocks Under $5 to invest in and Why
Top 4 Stocks Under $5 That Can Double In One Year
Here’s a look at the factors that make these penny stocks or stocks under $5 worth considering.
1. Tilray Brands
In general, cannabis stocks have suffered, with regulatory headwinds being the dominant factor. With the federal legalization of cannabis being debated, it’s an excellent time to consider some exposure to cannabis stocks.
Tilray Brands (NASDAQ: TLRY) has been on a sustained downturn. The penny stock is worth considering at the current $3.9. No doubt, it’s a high-risk bet. However, if there is good news on legalization, returns can be multi-fold from current levels.
Tilray has already chalked out an ambitious plan to deliver revenue of $4.0 billion by 2024. The company has also been reporting positive adjusted EBITDA on a sustained basis. Among cannabis stocks, TLRY stock, therefore, looks attractive.
The company also has a leadership position in Canada in the recreational cannabis segment. In Europe, the company has been expanding its presence in medicinal cannabis. With a presence in key markets, there is significant growth acceleration visibility. The stock performance in the coming quarters boils down to positive news from the regulatory front.
Although TLRY stock has corrected by almost 75% in the last 12 months, the downside seems to be capped. Some exposure to the stock can be considered at current levels.
2. Hive Blockchain
Anything related to cryptocurrencies has plunged in the last few months. With the crash in Bitcoin, sentiments have remained pessimistic. However, the best time to buy is when there is blood on the streets.
Hive Blockchain (NASDAQ: HIVE) seems a good investment option among crypto stocks. HIVE stock has declined by 58% in the last six months. However, the diversified cryptocurrency miner has been trending higher from lows, and it seems that the worst is over.
As an overview, Hive Blockchain is primarily into Bitcoin and Ethereum mining. The company has significantly ramped-up mining capacity, which has translated into strong top-line growth.
For the year ended March 2022, Hive reported revenue of $211.2 million. On a year-on-year basis, revenue surged by 212%. With a continued expansion of mining capacity, there is growth visibility for the coming quarters.
It’s worth mentioning here that Hive reported digital assets worth $170 million as of March 2022. It has a strong balance sheet with cash and digital assets. This provides flexibility to invest in aggressive growth.
Hive also has strategic investments in decentralized finance and the non-fungible token segments. In the next few years, these investments can potentially deliver value.
With the electric vehicle segment having favorable tailwinds for the coming years, Arrival (NASDAQ: ARVL) stock looks attractive. In the last 12 months, ARVL stock has slumped by over 80%. However, the worst is over for the stock, with several positives on the horizon.
As an overview, Arrival is in the commercial electric vehicle segment focusing on delivery vans and buses. The company already has an order from United Parcel Services for delivery vans. Overall, the company has non-binding LIOs and orders for 143,000 vehicles.
One factor that sets Arrival apart is the company’s micro-factory approach. These factories can be built in six months with a capital investment of $50 million. Arrival intends to have global reach with these micro-factories.
It’s also worth noting that Arrival expects to commence production of vans in Bicester in Q3 2022 and in Charlotte in Q4 2022. The guidance is for producing 400 to 600 vans during the year. Once mass production commences, ARVL stock will likely trend higher.
From a financial perspective, Arrival reported $735 million in cash and equivalents as of March 2022. With a healthy cash buffer, there is ample headroom for investment in product development and multiple micro-factories.
The oil price has corrected from recent highs on recession fears. However, a deep correction seems unlikely considering the factors of geo-political risk and tight supply. One way to benefit from higher oil prices is exposure to offshore drilling rig stocks.
Transocean (NYSE: RIG) seems like an attractive pick among stocks that trade below $5. After declining to recent lows of $2.4, the stock has sharply trended higher and trades at $3.6. The reason for the rally is strong quarterly numbers.
As of June 2022, Transocean reported an order backlog of $6.1 billion. The front-end loaded order backlog provides clear revenue and cash flow visibility. With favorable industry tailwinds, it’s likely that the company’s order backlog will swell in the coming quarters.
Another point to note is that new orders will likely come at a higher day rate. This will translate into EBITDA margin expansion and cash flow upside. Currently, Transocean has a robust liquidity buffer of $2.6 billion. With expectations of strong cash flows, the company is positioned for deleveraging.
Overall, RIG stock looks attractive with a medium to the long-term investment horizon. It will not be surprising if the stock delivers multi-fold returns from current levels.
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