In the realm of investing, I employ two strategies to identify ultracheap stocks with potential for significant gains.
The first approach involves comparing a company’s price-earnings or price-sales ratio to its historical and projected future growth. If a rapidly growing company has a slightly above average or lower valuation, I deem it very cheap. Likewise, if a company is expanding at an average rate but its valuation is significantly below average, I categorize it as ultracheap.
The second strategy I use to spot cheap stocks focuses on companies with tremendous potential. If I believe a relatively small firm could easily ascend to the top of its sector, I estimate the potential increase in its valuation upon reaching that milestone. If the shares could surge by at least 300% in such a scenario, I consider them ultracheap. With these strategies in mind, I present three ultracheap stocks poised for substantial gains.
Rivian (NASDAQ:RIVN)
Rivian (NASDAQ:RIVN) is shaping up to be the next Tesla (NASDAQ:TSLA), and it may even surpass Tesla’s success. Rivian’s impressive delivery of over 15,560 EVs last quarter, a significant increase from 6,584 deliveries a year earlier, demonstrates its robust growth and strong demand for its EVs. Online reviews of its EVs are generally very positive, indicating customer satisfaction.
Rivian’s potential to outperform Tesla is bolstered by the fact that two major companies, Amazon (NASDAQ:AMZN) and AT&T (NYSE:T), are showing interest in Rivian’s EVs. Amazon is deploying tens of thousands of Rivian delivery vans, and AT&T recently agreed to test the start-up’s vans and trucks. This corporate interest is something Tesla lacked in its early days. By selling EVs to both consumers and businesses, Rivian could become one of the world’s largest automakers within several years.
Despite Rivian’s recent rally, its market capitalization is a mere $21.5 billion, a fraction of Tesla’s $800 billion. This disparity makes RIVN one of the best ultracheap stocks to buy.
StoneCo (NASDAQ: STNE)
StoneCo (NASDAQ: STNE), a provider of financial technology and software solutions that facilitate e-commerce in Brazil, is another ultracheap stock to consider. The company, which primarily serves small-and-medium businesses, has 2.5 million customers and saw a 25% increase in its top line last quarter compared to the same period a year earlier, reaching roughly $630 million. Its net income, excluding some items, soared 300% year-over-year to about $87 million.
Despite StoneCo’s rapid growth, its forward price-earnings ratio is just 15.2, well below the average P/E ratio of the S&P 500. Bank of America (NYSE:BAC) recently upgraded STNE stock, citing the company’s impressive Q3 results and predicting a compound annual growth rate of 31% for the company’s bottom line between 2024 and 2027.
EVgo (NASDAQ:EVGO)
EVgo (NASDAQ:EVGO), like Rivian, is experiencing rapid growth and appears set to transition from a relatively small start-up to a major company in the near future. EVgo, which owns and operates one of the largest networks of EV fast chargers in the U.S., saw its top line skyrocket 234% last quarter compared to the same period a year earlier, reaching $35.1 million.
EVgo is partnering with several major automakers and receiving state government subsidies to build hundreds of EV charging stations. This will result in a vast network of EV chargers, incentivizing millions of EV drivers to use its chargers. As such, I anticipate EVgo’s rapid growth to continue for the foreseeable future.
Investment bank Piper Sandler recently echoed my belief that the slowdown in EV demand has been greatly exaggerated, predicting that EV sales will constitute 33% of the U.S. market in 2025, up from about 9% currently. EVgo stands to benefit greatly from this development, potentially becoming the Exxon (NYSE:XOM) or Chevron (NYSE:CVX) of the 2030s and 2040s. While operating EV chargers may not be as profitable as selling oil, there are clear parallels between the two businesses.
Let us know what you think, please share your thoughts in the comments below.
