I believe that the second half of the year will be bullish for equities. Of course, the first half has not been bad with the S&P 500 index trending higher by 12% for year-to-date. However, with the possibility of rate cuts, it’s likely that the markets will surge higher. This presents a compelling opportunity to invest in some undervalued stocks under $20.
The price-action is likely to be more in high-beta growth stocks than blue-chip ideas. The focus of this column is therefore on three undervalued stocks under $20 from the growth space that can deliver 100% returns before the end of the year.
An important point is that the stocks discussed represent companies that are likely to benefit from rate cuts. As an example, lower interest rates are likely to be positive for the struggling automotive industry. Similarly, asset classes like gold, commodities and cryptocurrencies will benefit as rate cuts translate into a weaker currency.
Let’s talk about the reasons to believe that these undervalued stocks under $20 are poised to surge higher.
Riot Platforms (RIOT)
Bitcoin (BTC-USD) is back above $70,000 and it’s likely that the bullish momentum will sustain for the cryptocurrency. Potential rate cuts in the coming quarters will be another catalyst for Bitcoin trending higher. Among crypto stocks, Bitcoin miners look attractive and Riot Platforms (NASDAQ:RIOT) seems to be trading at a valuation gap.
After remaining sideways for the last 12 months, RIOT stock trades at a forward P/E of 16. If the expansion plans are executed on time, I expect the Bitcoin miner to skyrocket. From a fundamental perspective, Riot ended Q1 2024 with a cash buffer (including digital assets) of $1.3 billion. Further, with a zero-debt balance sheet, financial flexibility is high to pursue aggressive investments.
It’s worth noting that the company ended the quarter with hash rate capacity of 12.5EH/s. By the end of the year, Riot plans to boost capacity to 31.5EH/s. This is likely to translate into healthy revenue and EBITDA growth. Riot intends to continue boosting its capacity with a target of 100EH/s by 2027. Therefore, there is visibility for sustained upside in revenue and cash flows.
Li Auto (LI)
In my view, Li Auto (NASDAQ:LI) is a steal below $20. In February, LI stock had touched highs of $47.3. The deep correction from those levels has been on the back of relatively low deliveries growth expectations. However, at a forward P/E of 16.6, the EV stock is undervalued.
For May, Li Auto reported deliveries growth of 23.8% on a year-on-year basis to 35,020 cars. It’s clear that growth numbers are healthy, but significantly lower than growth in the last financial year. This factor however seems to be discounted in LI stock.
An important point to note is that Li Auto ended Q1 2024 with a strong cash buffer of $13.7 billion. Aggressive retail store expansion in China is likely to continue and will support growth. At the same time, the launch of new models is a growth catalyst.
It’s also likely that Li will explore international expansion in the next 12 to 24 months. If reports are to be believed, the initial markets will be in the Middle-East. This is another potential catalyst for growth for the innovation driven EV company.
Kinross Gold (KGC)
With gold trending higher, Kinross Gold (NYSE:KGC) stock has rallied by 25% year-to-date. I however believe that KGC stock remains attractively valued at a forward P/E of 14.9. It’s also worth noting that the gold mining stock offers a dividend yield of 1.52% and I expect robust dividend growth.
The first point to note is that rate cuts are likely before the end of the year. This will be a catalyst for gold surging higher and I would not be surprised if the precious metal trades above $2,500 an ounce. Kinross will benefit from higher realized prices and healthy cash flow upside is likely.
The gold miner already has an investment grade balance sheet and ended Q1 2024 with a liquidity buffer of $2 billion. With higher realized price, it’s also likely that operating cash flows will be more than $1.5 billion. With high financial flexibility, Kinross is positioned to pursue acquisitions to boost production growth. Currently, the company has guided for stable gold production through 2026.
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.
