Warren Buffett often mentions Ben Graham’s lesson, “Price is what you pay; value is what you get.” However, it can often be difficult determining the best stocks under $5 when the story hasn’t yet materialized. They are priced that way as they are either new companies or have had a catastrophic business event that has pushed them into losses and debts. Determining if the stock is a good buy requires many different factors. The company’s financial health being of the utmost important.
Best Stocks Under $5 List:
- Greenlane Renewables
- Hive Blockchain Technologies
- Electrameccanica Vehicles
- American Lithium
- Denison Mines
High Risk, High Reward
You have the classic semiconductor turnaround story of Advanced Micro Devices. The stock traded below $4 in May 2016 and is now trading above $114, a 2750% growth in less than six years. Hydrogen cell company, Plug Power stock, moved from less than $4 in March 2020 to above $66 in February 2021. It is now down 64% from its peak.
These are some outliers in the pool of stocks under $5, which mostly fail or give marginal growth. If you are willing to take that risk, even one outlier can give you high rewards. But it is difficult to say which stock will perform well in the future as they are not the kind with a growth history and strong fundamentals. The trick is to bet on stocks that have a catalyst at play. If the growth catalysts work, they could be the future AMD and Plug Power.
I have identified five high-risk, high reward stocks sitting on a catalyst.
Greenlane Renewables Stock
Greenlane operates in a niche market of renewable natural gas (RNG). Its catalyst is the government’s clean energy bill that promotes RNG. The stock surged 567% between September 2020 and February 2021 when Joe Biden became the US President. Biden administration promotes clean energy. However, the pandemic and the Ukraine-Russia war have delayed these projects, pulling Greenlane stock down more than 62% from its peak.
But RNG projects are likely to grow in the future. Greenlane, with annual revenue of $47 million, has won three contracts worth $19 million. A $12.1-million contract from Fortis in December, and two projects worth over $7 million in the US and Brazil. The risk is Greenlane should sustain when the catalyst triggers.
Hive Blockchain Technologies
Hive is one of the oldest blockchain companies and earns revenue from selling BTC and ETH it mines and hosting computing capacity to miners. Hive’s stock price is directly proportional to BTC and ETH prices. The stock surged 1,842% in the latest crypto bubble from October 2020 to February 2021. After uncertainty and a regulatory crackdown from China and India, Hive stock fell 63% from its February 2021 high.
Hive is diversifying beyond crypto into other avenues like AI and rendering, where it can monetize its data center’s graphic computing capacity. The stock’s catalyst is the growing crypto adoption, and the risk is a crypto ban. It is a 50-50 probability of a dip and rise for Hive.
Electrameccanica Vehicles
Another growing trend is the electric vehicle (EV) wave. Electrameccanica Vehicles is a small and niche player, manufacturing three-wheeled EVs named SOLOs. It is still building a facility in Arizona that will have the capacity to produce 20,000 SOLOs annually. The company’s catalyst is government spending on EVs. Hence, the stock surged 300% in a month when Biden became the US President and passed the clean energy bill.
However, the chip supply shortage delayed the EV adoption, pulling the stock down 81% from its peak. The company is burning cash in hopes its SOLO will receive a good response. This is its opportunity as well as risk. Depending on which factor plays out, you could see severalfold growth or lose your investment.
American Lithium
Another stock that will benefit from the EV wave is American Lithium which acquires, explores and develops Lithium projects. This metal has suddenly come in demand as it is a key material to make Lithium-ion batteries. These batteries have high efficiency and energy density and are used in EVs, renewables (solar panels), and consumer electronics like mobile, tablets and laptops. This demand is its catalyst.
But Lithium is not a publicly-traded metal, making it difficult for retail investors to determine its market value. Now, that is a risk you have to take. Just like Electrameccanica Vehicles, American Lithium stock surged over 143% in a month during the US election and 147% between August and November 2021. But the stock has corrected 45% since its high, creating an opportunity to buy the dip before it jumps.
Denison Mines
Another niche market is uranium, and Denison Mines is in it. Amid the growing energy crisis in Europe and escalating war between Russia and Ukraine, countries are now looking at renewable alternatives. Germany is heavily dependent on Russia for its natural gas supply. Reuters reported that Germany is considering extending the lifespan of its three remaining nuclear power plants to secure energy supply. Just on this news, uranium price surged 13%, and Dension Mines stock surged 34%.
But these are just thoughts. Hence, the stock could fall if Germany decides otherwise. The catalyst for Dension is the demand for uranium fuel to generate clean energy from nuclear power plants.
Best Stocks Under $5 Investor Takeaway
The above stocks are hanging on to one catalyst that could open the flood gates to significant growth. But beware of the risk if the catalyst doesn’t materialize the way these companies expected.
Disclosure: The author holds no position mentioned in this article. Freedom Stocks has a disclosure policy.
