Micro-cap stocks are defined as companies with a market valuation of $50 to $300 million. These stocks, therefore, represent early-stage companies with a small equity base. Two more things follow.
First, micro-cap stocks carry an extremely high risk; a small part of the portfolio should be allocated to these names. I would compare micro-cap stocks to investing in a decent cryptocurrency project.
Further, the returns in micro-cap stocks can be multi-fold if the companies they represent deliver and grow at a stellar pace. Given the risk involved, I would not consider more than 5% to 10% portfolio exposure to these stocks. That’s, however, enough to boost overall portfolio returns as I am focused on micro-cap stocks with 10x potential.
Talking about the investment horizon is challenging. The best idea is to review business developments every quarter for further conviction on the idea. However, I believe these micro-cap stocks can deliver 10x returns within the next 36 months.
Let’s discuss the reasons to be optimistic.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) stock has plunged 67% in the last 12 months. The company is working toward potential commercialization of solid-state batteries. If successful, returns in SLDP stock can be multi-fold. This looks like a good accumulation opportunity with a deep correction and positive business developments.
In a big development, Solid Power has made its “first A-1 EV cell deliveries to BMW (OTCMKTS:BMWYY) to enter automotive qualification formally.” If results are positive from validation testing, it’s likely to be a big boost for the stock. I must add that Ford (NYSE:F) is another automotive player backing the company.
I also like that Solid Power has $422 million in cash buffer. That’s more than the company’s market valuation. The cash buffer will ensure no equity dilution is needed in the next 12 to 24 months. Further, the backing of BMW and Ford may help scale operations if the company’s technology is proven.
Bitfarms (BITF)
Bitfarms (NASDAQ:BITF) trades at a market capitalization of just over $300 million. Considering its strong fundamentals, I wanted to discuss the bullish thesis for Bitfarms. It’s difficult to find stocks micro-cap stocks with above average fundamentals.
To put things into perspective, Bitfarms reported a liquidity buffer of $65.8 million as of Q3 2023. Further, the company expects to be debt-free by February 2024. High financial flexibility will allow Bitfarms to pursue aggressive Bitcoin mining capacity expansion next year.
The second reason to like Bitfarms is that a Bit rally is impending in Bitcoin. Standard Chartered believes the cryptocurrency can touch $120,000 by the end of 2024. If this holds true, BITF stock can easily do 10x from current levels.
For Q3 2023, Bitfarms reported revenue and EBITDA of $35 million and $7 million, respectively. The company is a low-cost Bitcoin miner, and if the digital asset surges, EBITDA margin expansion will be significant. It’s, therefore, a good time to consider exposure to the stock for multibagger returns.
Vertical Aerospace (EVTL)
Vertical Aerospace (NYSE:EVTL) stock is among the lesser-known names in the flying car industry. Overall, it’s been a good year for some of the best EVTL stocks. However, EVTL stock has declined 75% due to concerns of cash burn and dilution of equity. The correction is overdone, and the micro-cap stock looks interesting at 80 cents.
It’s worth noting that Vertical Aerospace is targeting 2026 as the year for commercial launch of its flying cars. However, the company claims to have a pre-order for 1,400 aircraft, which implies an order book of $5.5 billion. Recently, South Korean mobility firm Kakao Mobility ordered up to 50 VX4 aircraft.
For now, the challenge is to navigate the regulatory hurdles. At the same time, the company would need a continuous cash infusion to maintain operations. If the business progress remains steady, 10x returns from current levels would not be a distant target.
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.
