LAC - 7 High-Risk Stocks Worth a Gamble for Multibagger Returns
2024-07-12 06:00:00 ET
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I would never recommend that investors go overboard on high-risk stocks. At the same time, it’s important to remember that millionaires are not made by investing in low-beta stocks. For young investors, there needs to be some brave portfolio allocation that delivers multibagger returns in relatively quick time.
Depending on the age of an investor and risk-taking ability, I would recommend 10% to 20% exposure to high-risk stocks. When I talk about risk, it does not imply speculative stocks. The idea is to consider exposure to early-stage businesses or growth stocks with positive industry tailwinds. However, it’s important to avoid stocks with a poor balance sheet even if industry tailwinds exist.
The high-risk stocks discussed in this column have the potential to deliver 10x to 20x returns within the next five years. While it’s important to regularly review business developments, holding patiently is the key to massive wealth creation.
Lithium Americas (LAC)
Lithium has remained in a sustained downtrend and this has translated into a meltdown in the best of lithium stocks . The sector looks deeply undervalued and there can be multibagger stories when lithium recovers. One stock that deserves a place in the portfolio is Lithium Americas (NYSE: LAC ).
There seems to be extreme fear with LAC stock having plunged by almost 60% for year-to-date. However, the underlying lithium asset exists and is a likely cash flow machine. Talking about the undervaluation, Lithium Americas trades at a market valuation of $550 million. In comparison, the company’s Thacker Pass asset has an after-tax net present value of $5.7 billion.
Another point to note is that the first phase of construction of the asset requires a capital expenditure of $2.93 billion. With the loan commitment from the U.S. Department of Energy, cash infusion by General Motors (NYSE: GM ), and the recent equity dilution, Lithium Americas is fully financed . As the construction progresses and with the likelihood of lithium trending higher from oversold levels, LAC stock is positioned to surge.
Marathon Digital (MARA)
Among high-risk crypto stocks to buy, Marathon Digital (NASDAQ: MARA ) looks attractive. The Bitcoin ( BTC-USD ) miner trades at a forward P/E of 23.2. Considering the expansion plans, valuations are attractive.
There are two catalysts for multibagger returns in MARA stock. First, Bitcoin trading at new highs in the coming years. This seems likely with limited supply and wider adoption of digital assets. Further, expansionary policies are likely to support a bull market in cryptocurrencies.
Further, Marathon has some ambitious growth plans that’s backed by strong fundamentals. As of May, the miner reported an average operational hash rate of 25.7EH/s. This represents a year-on-year growth of 106% in hash rate capacity. Marathon is targeting to achieve capacity of 50EH/s by the end of the year. This is likely to translate into stellar revenue and cash flow upside.
It’s worth mentioning that as of May, Marathon reported a cash buffer (including digital assets) of $1.5 billion. High financial flexibility will allow the company to pursue aggressive expansion beyond 2024. Last month, Marathon also announced the commencement of Kaspa ( KAS-USD ) mining to diversify its portfolio of digital assets.
Archer Aviation (ACHR)
It’s expected that the flying car industry will be worth $29 billion by 2030. Further, the market size is expected to swell to $1 trillion by 2040. It goes without saying that early movers in the industry with the right execution can be massive wealth creators.
Archer Aviation (NYSE: ACHR ) looks attractive among eVTOL companies. ACHR stock has remained sideways in the last 12 months and a breakout is imminent. The reason being that Archer is on-track to commercialize its eVTOL in the U.S. in 2025.
I must mention at the onset that investors and strategic partners in Archer include Stellantis (NYSE: STLA ) and United Airlines (NYSE: UAL ). This underscores the potential the company holds.
Besides operations in the United States, the flying car company has stitched local partnerships in UAE, India, and Korea. Over the next 24 to 30 months, Archer is likely to have healthy geographic presence. This will support stellar growth in 2025 and beyond. The company is already constructing its manufacturing facility to scale-up eVTOL production capabilities.
Cronos (CRON)
Cannabis stock can be massive value creators if the global regulatory environment continues to turn friendly. Cronos Group (NASDAQ: CRON ) is among the most undervalued stocks to consider. If the business continues to progress in the right direction, 20x returns seem likely within five years.
One reason to like Cronos is a robust cash buffer of $855 million. The cannabis company has been conservative in utilizing its cash. Once the regulatory environment is clearer, I expect some big acquisitions.
On the organic growth front, Cronos has been making progress in the last few quarters. Earlier, the company was focused on Canada and Israel. However, Cronos has entered the new markets of Australia, Germany, and the United Kingdom. This is likely to support growth acceleration.
Recently, Cronos announced a $51 million secured non-revolving credit facility to GrowCo (50% ownership) to fund facility expansion. The financing will help GrowCo to address the increased global market demand for high-quality cannabis flower.
Li Auto (LI)
Li Auto (NASDAQ: LI ) stock traded at highs of $47.3 earlier this year. There has been a steep correction from those levels and LI stock is near 52-week lows. I see this as a golden opportunity to accumulate. LI stock looks massively undervalued at a forward P/E of 18.4.
There are two important reasons for the steep correction. First, the EV company has revised its growth estimates downwards for the financial year. Further, tariff on Chinese EVs by the European Union has impacted sentiments. It’s however worth noting that Li Auto is currently focused only on China.
Among the positives, Li Auto delivered 108,581 vehicles in Q2, which was higher by 25.5% on a year-on-year basis. Deliveries growth has therefore remained healthy.
Further, Li Auto ended Q1 with a strong cash buffer of $13.7 billion. This provides ample flexibility to invest in technology and product development. The Chinese EV player is targeting to launch level 3 self-driving technology in 2025. A possible expansion in the Middle-East might also be on the cards.
DraftKings (DKNG)
DraftKings (NASDAQ: DKNG ) is another high-risk, but attractive growth stock to buy. The company offers iGaming and online sports betting (OSB) in multiple states in the U.S. With a big addressable market, I believe that DraftKings is likely to remain in a high-growth trajectory. Further, as EBITDA margin expands, it’s likely that DKNG stock will surge higher.
To put things into perspective, the OSB and iGaming market in the U.S. was $20 billion in 2023. The market is expected to grow at $30 billion (existing states) by 2028. Clearly, there is a big opportunity for DraftKings and this will ensure stellar top-line growth. I must add here that potential expansion in Europe is a catalyst for growth acceleration.
Another point to note is that DraftKings reported EBITDA loss of $151 million for 2023. For the current year, the company expects to deliver adjusted EBITDA of $500 million. Further, DraftKings has guided for adjusted EBITDA of $1.4 billion and $2.1 billion for 2026 and 2028 respectively. Clearly, with revenue growth, the business is likely to be a cash flow machine.
IAMGOLD Corporation (IAG)
Let’s end the discussion with a penny stock that holds immense promise. IAMGOLD (NYSE: IAG ) stock has surged by 55% in the last 12 months. However, the gold miner looks attractive at a forward P/E of 14.3. Fresh exposure can be considered with a long-term investment horizon.
An important point to note is that the outlook for gold is bullish. The precious metal has trended higher this year and trades near $2,400 an ounce. With the likelihood of rate cuts, I expect gold to trade above $2,500 an ounce in the coming months. IAMGOLD is therefore positioned to benefit from higher price realization.
Specific to the company, there are two positives to note. First, IAMGOLD has strong fundamentals and ended Q1 2024 with a liquidity buffer of $693.8 million. This allows the gold miner to aggressively invest in exploration activities.
Further, IAMGOLD has just commenced production from the Côté gold asset, which is among the largest gold mines in Canada. In the next few years, the Côté asset will support production growth coupled with revenue upside. With higher realized prices, cash flows are likely to swell.
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 .
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
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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