When policymakers pursue rate cuts, the main idea is to lower the cost of money for businesses and consumers. This translates into higher investment and consumption spending and GDP growth accelerates. However, the unintended consequence of easy money is higher speculative activity across asset classes. Therefore, with the possibility of rate cuts in the second half of 2024, I would look at some penny stocks to buy for significant price action.
While I am talking about higher speculative activity, the penny stocks discussed represents companies with good fundamentals. Some of these ideas will also benefit from a business perspective on the back of expansionary policies. Therefore, as the stocks discount potential growth acceleration, it’s likely that the upside will be sharp.
Overall, I expect these penny stocks to buy to double in the next six months. Let’s discuss the fundamental reasons to be bullish.
IAMGOLD (IAG)
As I write, gold is trading near $2,400 an ounce. As the markets get closer to rate cuts, I expect the precious metal to remain in an uptrend. Gold mining stocks are therefore a good investment theme. IAMGOLD (NYSE:IAG) stock has surged by 77% for year-to-date. However, the gold mining stock remains attractive at a forward price-earnings ratio of 21.2.
Besides the factor of higher realized price, IAMGOLD is positioned for robust production growth. The Company’s Côté Gold asset commenced production this year with ramp-up underway. For the current year, IAMGOLD has guided for production in the range of 560,000 to 665,000 ounces. Therefore, robust cash flow is likely on the back of production upside and higher realized price.
It’s also worth noting that the Company ended Q1 2024 with a liquidity buffer of $693.8 million. With quality undeveloped assets, IAMGOLD has flexibility for aggressive investments in the next 12 to 24 months. Overall, considering the production bump-up and free cash flow potential, I expect IAG stock to trade in double digits by the end of the year.
Ring Energy (REI)
With macroeconomic headwinds, crude oil has struggled around $80 per barrel. However, assuming a scenario of multiple rate cuts, I expect a sharp rally for energy prices. It’s therefore a good time to remain invested in oil & gas stocks. Among the penny stocks to buy, Ring Energy (NYSE:REI) looks undervalued. REI stock has remained sideways in the last 12 months and a big breakout rally seems imminent.
The first point to note is that Ring Energy has a good track record in terms of execution. Backed by organic growth and acquisitions, the Company has production growth at a CAGR of 26% between 2018 and 2023.
Further, the Company has a quality asset base with 129mmboe of proved reserves. A PV10 valuation of $1.65 billion is also indicative of the valuation gap for Ring Energy. To put things into perspective, the Company commands a market valuation of just $354 million.
I also like the fact that the Company’s adjusted EBITDA and free cash flow have been positive. Further, there has been steady growth in these metrics backed by higher production. With the possible of higher realized oil price, the outlook is bullish.
Archer Aviation (ACHR)
Unlike the first two stocks discussed, Archer Aviation (NYSE:ACHR) does not benefit directly from rate cuts. However, ACHR stock looks attractively valued after a correction of 36% for year-to-date. In my view, the second half of the year will be characterized by a strong reversal in trend with commercialization of eVTOL due in 2025.
According to Morgan Stanley, the urban air mobility market is expected to be worth $29 billion by 2030 and $1 trillion by 2040. Early movers in the industry can create massive value. Based on business progress, ACHR stock might be worth holding in the core portfolio.
For now, new of progress in certifications from the U.S. Federal Aviation Authority is a potential catalyst. The Company is targeting more than 400 test flights this year.
Further, Archer is on-track to build its manufacturing facility this year. This will support the manufacturing of 650 aircraft annually. With the Company having an indicating order book of $3.5 billion, there is strong growth visibility for 2025 and beyond.
Bitfarms (BITF)
I can say with some conviction that Bitfarms (NASDAQ:BITF) will surge by 100% at the blink of an eye. The basic assumption is that Bitcoin (BTC-USD) trades at new highs in the coming months and that’s very likely.
As an overview, Bitfarms is among the most undervalued Bitcoin miners. With aggressive expansion plans, the Company is positioned for stellar revenue and cash flow upside in the next few quarters.
Bitfarms ended Q1 2024 with a hash rate capacity of 7EH/s. The Company plans to increase capacity to 21EH/s by the end of the year. Further, the Company’s growth beyond 2024 will be backed by strong fundamentals. As of Q1 2024, Bitfarms had zero-debt and a liquidity buffer of $124 million.
It’s worth noting that for Q1 2024, Bitfarms reported revenue growth of 67% on a year-on-year basis to $50 million. For the same period, adjusted EBITDA swelled by 233% to $21 million. I expect EBITDA margin expansion to sustain on the back of higher Bitcoin prices. With all these positives, the subdued BITF stock is likely to skyrocket.
Cronos Group (CRON)
Cronos Group (NASDAQ:CRON) stock has gained momentum in the recent past with an upside of almost 40% for year-to-date. I believe that the positive momentum will sustain and potentially accelerate in the coming quarters.
The first reason to be bullish on Cronos is a relative decline in regulatory headwinds. Germany recently legalized recreational cannabis. It’s also likely that cannabis will be reclassified as a Schedule III (less dangerous) drug in the U.S. With Presidential elections round the corner, there might be a case for renewed calls for federal level legalization.
Specific to Cronos, there are two points to note. First, the Company ended Q1 2024 with a robust cash buffer of $855 million. This provides ample flexibility for organic and acquisition driven growth.
Further, Cronos has focused on geographical expansion in the last few quarters. In 2023, the Company ended the medicinal cannabis market of Germany and Australia. Recently, Cronos announced its entry in the United Kingdom cannabis. This is likely to translate into accelerated revenue growth.
Wallbox (WBX)
In general, the emerging names in the EV charging industry have been battered in the last 12 months. The reasons include relatively slow growth and competition. However, it seems that the worst is over for selected stocks. Wallbox (NYSE:WBX) looks attractive and has remained sideways in the last six months. I expect a breakout rally after this period of consolidation.
Wallbox recently reported Q1 2024 numbers and there were several positives. First, revenue growth was healthy at 23% on a year-on-year basis to 43.1 million euros. For the same period, gross margin was 39.6%, which was higher by 600 basis points. Adjusted EBITDA losses have also narrowed and if this trend sustains, I expect WBX stock to rally.
An important point to note is that Wallbox has established presence in the United States, Europe, Asia Pacific, and Latin America. The addressable market is big and as the Company widens its product portfolio, there is visibility for accelerated growth. Overall, as Wallbox moves towards EBITDA break-even, I am bullish on the story.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) stock has witnessed a big meltdown from the highs of 2021. While the hydrogen economy will get bigger in the coming years, there are big doubts on Plug Power’s execution capabilities.
Recently, PLUG stock touched 52-week lows of $2.25. The big sell-off has been followed by a sharp rally with the stock surging by 51% to current levels of $3.4.
The catalyst for the rally is the news that Plug Power has received conditional commitment for an up to $1.66 billion loan guarantee from the Department of Energy. This will help in “development, construction, and ownership of up to six green hydrogen production facilities.”
Without doubt, the news will instil confidence among investors and I expect the rally from deeply oversold levels to sustain. I will not be surprised if PLUG stock is back to double digits by the end of the year. My view is underscored by the point that the meme stock rally has gained traction in the recent past.
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.
