Spotting multibagger penny stocks was relatively easy in 2021. The current year has been a complete reversal, though.  I believe that 2023 will be a year of careful stock selection. The index might see time correction, if not price correction. However, certain investment themes and stocks will outperform.

If we look at the brighter side among multiple economic headwinds, several stocks are seriously undervalued. This is particularly true for growth stocks, penny stocks included. Even on a conservative basis, there are potential multibagger penny stocks for 3x to 5x returns in the next five years.

It’s a good time to allocate a small part of the portfolio to these potential multibagger penny stocks. I must mention that these are stocks that represent companies with a decent business model and fundamentals. A positive view on these stocks is therefore based on business development than speculation.

Let’s talk about the reasons to be bullish on these potential multibagger penny stocks.

Tilray Brands (TLRY)

Tilray Brands (NASDAQ:TLRY) stock seems seriously undervalued at current levels of $2.9.

Tilray is a market leader in the recreational cannabis segment in Canada. Additionally, the company has a 20% share in medicinal cannabis in Germany. With the company targeting $4 billion in revenue by 2024, the outlook is promising. Of course, the revenue guidance is in a federal-level legalization scenario.

Tilray has also made significant progress in terms of reducing cash burn. As a matter of fact, the company expects all business units to be free cash flow positive in the current financial year. With operating leverage, the company is positioned for long-term value creation, making it one of the multibagger penny stocks to grab up now.

Tilray has acquired two brewing companies in the United States. With a strategic infrastructure in place, the company is positioned to accelerate growth on legalization.

Curaleaf Holdings (CURLF)

Curaleaf Holdings (OTCMKTS:CURLF) stock is another potential multibagger penny stock from the cannabis industry. After declining by 55% for year-to-date 2022, the stock looks attractive for exposure.

A big reason to like Curaleaf is the fact that the company already has a presence in 22 states in the U.S. Additionally, Curaleaf has been expanding its presence in Europe.

Curaleaf is also attractive with the company reporting positive adjusted EBITDA on a consistent basis. For Q3 2022, Curaleaf reported an adjusted EBITDA margin of 24.7%. With revenue growth, EBITDA margin expansion is likely in the coming years.

The company has an edge over its peers considering the investment in research and development. In Q3 2022, the company generated 18% revenue from new products launched in the last 12 months. The company currently has more than 50 products and ideas in front-end innovation. It’s likely that new product launches will continue to boost revenue growth.

Kinross Gold (KGC)

Gold seems to have bottomed out and has been trending higher as inflation eases on a relative basis. It’s a good time to accumulate gold mining stocks. Among penny stocks, Kinross Gold (NYSE:KGC) looks attractive and has multibagger returns potential.

Without a doubt, it’s been a bad year for Kinross. The company had to sell Russian assets at a steep discount. Further, the sale of assets also implied lower production guidance for 2023 and beyond. However, all these factors are discounted in the stock.

If we look at the positives, Kinross reported a liquidity buffer of $2 billion as of Q3 2022. There is ample financial flexibility for dividends and share buyback. Additionally, Kinross has guided for positive free cash flows, which will add to the liquidity buffer.

While 2022 was a year of asset sale for the company, considering the liquidity buffer, acquisitions seem likely in 2023. Even without any acquisition, Kinross has stable production and cash flow visibility for the next few years.

Polestar Automotive (PSNY)

Among electric vehicle stocks, Polestar Automotive (NASDAQ:PSNY) looks attractive. The stock has dipped sharply in the recent past on concerns related to a surge in covid cases in China.

However, beyond this headwind, Polestar has ambitious plans and has been reporting strong growth.

Another concern for Polestar has been widening losses at the operating level. However, that’s acceptable because the company is still at an early growth stage. With the recent financing of $1.6 billion, Polestar is fully financed through 2023.

For the first nine months of 2022, Polestar has reported 100% growth in vehicle deliveries on a year-on-year basis. It’s likely that deliveries will remain robust in the next few years. Polestar 3 was launched in the last quarter.

Further, Polestar 4 and Polestar 5 are due for launch in 2024 and 2025 respectively. The company already has a presence in 27 markets globally. With new models and expanding presence, deliveries growth is likely to remain strong. Operating leverage will ensure that EBITDA level losses narrow going forward.

Transocean (RIG)

Even after factoring in a slowdown or recession in 2023, oil has sustained around $80 per barrel. Offshore drilling activity is therefore likely to remain robust. Transocean (NYSE:RIG) stock has trended higher by 46% in 12 months. Considering the growth outlook, I expect the uptrend for RIG stock to sustain.

As of December 2022, Transocean had an order backlog of $8.3 billion. This includes $7.3 billion in backlog as of October 2022 and a recent order win of $1 billion. There are two points to note.

First and foremost, the order backlog for the company has accelerated in 2022 and intake is likely to remain strong in 2023. Furthermore, the new order backlog comes at a higher day rate, which would imply EBITDA margin expansion in 2023 and beyond.

Transocean expects to deleverage in the next few years as cash flows increase. An improvement in credit metrics will translate into stock rerating and potential upside.

Solid Power (SLDP)

Solid Power (NASDAQ:SLDP) stock has plunged by 72% for year-to-date 2022. A key reason is a potential delay in the commercialization of solid-state batteries. However, after a deep correction, SLDP stock looks attractive.

In recent news, Solid Power has agreed to offer intellectual property rights related to its solid-state batteries to BMW. This will allow BMW (OTCMKTS:BMWYY) to produce battery cells at its German facility. It’s worth noting that Ford (NYSE:F) and BMW have been backing Solid Power.

In 2023, Solid Power will be delivering silicon battery cells to these automotive giants for validation testing. Positive news on that front is a big trigger for SLDP stock.

In terms of potential for growth, the EV battery addressable market is expected to be $305 billion by 2035. With the possible advantages of better battery life and high safety, solid-state batteries have ample headroom for market penetration. The stock is therefore worth holding for the next five years.

Borr Drilling (BORR)

Borr Drilling (NYSE:BORR) is another name among potential multibagger stocks to buy. BORR stock has surged by 131% in the last 12 months. However, considering the positive tailwinds for the offshore drilling rig services industry, further upside is likely.

Borr Drilling has benefitted through 2022 on the back of robust order intake. For the first nine months, the company reported 22 new orders with potential revenue visibility of $1.36 billion.

The company reported asset utilization of 95% as of Q3 2022. With day rates increasing, Borr is likely to see sustained EBITDA margin expansion. For Q4 2022, the company has also guided for revenue growth of 25% on a quarter-on-quarter basis.

Borr also reported a strong cash buffer of $279 million as of Q3. This, coupled with debt refinancing agreements have ensured that the company’s credit stress declines. As cash flows increase in 2023, Borr Drilling will be positioned to deleverage.

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.