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Here’s 1 dirt-cheap penny stock recovery play

Jabran Khan — Wed, 04 May 2022 15:39:00 +0000

McBride (LSE:MCB) is a penny stock that I believe could be an excellent recovery play. Should I add the shares to my holdings?

Cleaning and hygiene

McBride is the leading European manufacturer and supplier of private label and contract-manufactured products for the domestic household and professional cleaning and hygiene markets. It sells over 1bn products a year, to 49 of the 50 top grocery stores in Europe.

So what’s the current state of play with the McBride share price? Well, a penny stock is one that trades for less than £1. McBride shares are currently trading for 34p. At this time last year, the shares were trading for 78p, which is a 56% drop over a 12-month period.

I believe McBride shares have fallen due to macroeconomic and geopolitical factors in recent months, but more on that later. These issues have affected performance.

For and against buying the shares

FOR: McBride is an established provider of cleaning products and solutions. This is in a time when the pandemic has created a new focus on hygiene. Currently, there are no signs of the pandemic ever fully disappearing. This means sales of cleaning and hygiene products should continue to increase, in my opinion.

AGAINST: Soaring inflation has led to a rise in costs of raw materials. The supply chain crisis has also affected many businesses. McBride is no different. All these factors have affected the balance sheet. There is no telling if this is a permanent change to the economy in terms of cost of materials and supply chain disruptions.

FOR: McBride has a consistent and long track record of performance. A penny stock with extensive trading information is not a common thing. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that it has reported consistent revenue for the past four years, close to £700m. Coming up to date, a half-year report released at the end of February reported inflationary pressures but I prefer to focus on the steps management took to combat these issues. McBride is undergoing a new pricing strategy that will help boost the bottom line as well as a cost saving initiative. The results of these initiatives will become clearer in the full-year results.

AGAINST: The other issue I have is that McBride may need to increase prices to continue its profitability and growth. Despite the macroeconomic outlook, raising prices can affect relationships and McBride may lose customers due to this. This would have a real impact on the bottom line and any returns I would hope to make.

A penny stock I’d buy

I do believe McBride is a good stock for longer-term recovery despite current pressures. The shares look cheap, on a price-to-earnings ratio of close to 3. Industry peers are predominantly operating on a ratio of close to 10.

I would be willing to add a small number of McBride shares to my holdings. I’d hold on to them for the long term, which is my investing mantra. I would expect to see growth in the longer term.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

£100 to invest? Here’s 1 penny stock with a 6%+ dividend yield!

Jabran Khan — Wed, 20 Apr 2022 15:40:00 +0000

One penny stock I am considering for my holdings is Centamin (LSE:CEY). Here’s why.

Gold producer

Centamin is a gold mining company with a core focus in African territories. It has operations in Egypt, Cote d’Ivoire, and Burkina Faso but its main asset is its Sukari Gold Mine, in Egypt.

In times of economic uncertainty, when inflation is soaring, commodities prices can often rise. Rising levels of US inflation have seen commodities prices, such as gold, continue to rise in recent months.

A penny stock is a stock that trades for less than £1. Centamin shares have cooled and dropped into this category. They are currently trading for 90p. At this time last year, the shares were trading for 114p, which is a 21% drop over a 12-month period.

The bear case

A real issue Centamin shares could face is the reaction of central banks to curb inflation. If central banks continue to increase interest rates to ward off inflation and this results in a rise in the value of the US dollar, the value and demand for gold could fall. If the value of gold falls, Centamin’s performance and shares could be hit hard. If performance levels were to drop, any returns I hope to make could also be affected.

The other issue with investing in Centamin shares is that its Sukari Gold Mine is its only revenue-producing mine. There is a chance operations could come under pressure or a multitude of issues could occur, affecting production. In turn, this could affect performance and returns.

A penny stock I’d buy

Centamin shares have been on a downward trajectory in recent months and I consider now an excellent opportunity to buy the dip. The share price at current levels represents good value for money, in my opinion. The shares are currently on a price-to-earnings ratio of close to 13.

As well as value for money, Centamin shares also possess an enticing dividend yield of 6%. It is worth noting the FTSE 100 average dividend yield is 3%-4%. Centamin shares could help me boost my passive income stream. It is worth noting that dividends can be cancelled, however.

Centamin also has a good track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see revenue and profit increased year on year for three years between 2018 and 2020. 2021 levels dropped, due to the pandemic and its effects.

In addition to performance, Centamin has no debt on its books. I am buoyed by this as it means not only can it invest in future growth, but I would expect to see higher than average returns without the worry it needs to pay down or service debt.

Overall I believe Centamin shares are an excellent penny stock for me to buy and hold for the long term. I’d add the shares to my holdings.

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I was right about this penny stock! Here’s another one I’d buy

Paul Summers — Thu, 03 Feb 2022 07:21:58 +0000

As I speculated in March last year, car dealer Lookers (LSE: LOOK) was to enjoy a brilliant 2021. Throw in 2022’s gains so far and it’s now in serious danger of losing its penny stock status. Not that I expect holders will complain.

Penny stock power

Since February 2021, shares in the small-cap have soared over 150%! Contrast this with the 17% and 8% uplift in the FTSE 100 and FTSE 250 respectively and I have more evidence of how minnows have the potential to turbocharge my wealth. This is assuming, of course, I select them carefully. A healthy bit of luck goes a long way too.

Still, the reasons for Lookers incredible returns aren’t hard to fathom. A shortage of semiconductors and a consequent slowdown in manufacturing has accelerated the price of new and second-hand vehicles. This, when combined with the growth in savings as a result of multiple UK lockdowns, was always likely to benefit the £380m-cap company.

With Covid-19 travel restrictions throwing holiday plans into disarray, the rush to buy a new (or nearly new) set of wheels was inevitable in hindsight.

Can this continue?

January’s trading update certainly made for pleasant reading. Trading “remained strong” and “above the Board’s expectations” in the final quarter, thanks to “excellent new and used vehicle margins“. Like-for-like after-sales revenues were also up 7.1% compared to the previous year.

The share price also received another huge boost at the end of last month after Constellation Automotive Holdings snapped up almost 20% of the company. According to chairman Ian Bull, the new investor regards the company as “significantly undervalued“. Then again, you wouldn’t expect them to say anything different. No less than 102p was paid for each share!

Time will tell if this proves to be a good bit of business. Lookers certainly appears cheap at face value. Even with the near-39% drop in earnings per share expected in 2022, the stock still changes hands at a P/E of just nine. A forecast dividend yield of 3.3% is also in the offing to prospective owners.

Based on these attractions, I’m cautiously optimistic this penny stock can continue rising. That said, I don’t doubt they’ll be some profit-taking soon. I also need to remember that margins are wafer-thin and demand will surely moderate as supply chains get back to normal.

Bouncing back in 2022?

Since I highlighted its potential at the same time as Lookers, it’s worth mentioning that I remain optimistic about freight manager Xpediator (LSE: XPD). That’s despite the company’s share price coming back down to earth after motoring during the first half of 2021.

January’s trading update on FY21 didn’t contain any nasties as far as I could see. Revenue “in excess of £300m” is now expected. That’s growth of at least 36%. Adjusted pre-tax profit will also be “well in excess of £8.5m” compared to the £7.2m achieved in 2020.

Looking ahead, a new 200,000 sq ft facility in Southampton is predicted to bring efficiency and capacity benefits this year. Increased business in Europe is also likely as Covid-19 restrictions are lifted.

For balance, it’s worth mentioning that this penny stock’s margins are as thin as those of Lookers. The current P/E of 13 is also fairly high, relative to the industry average, although the shares do come with a well-covered 3.1% dividend yield.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Renewable energy boom: my top 3 shares for 2022

Suraj Radhakrishnan — Wed, 05 Jan 2022 13:02:36 +0000

I think a shift in investor mentality towards companies working with common Environmental, Social and Governance (ESG) goals will become vital in the next decade. Businesses embracing sustainability and working in areas that promote renewable energy sources are multiplying as we move towards a greener supply chain. And an important concern raised at last year’s COP 26 event is switching to more renewable power sources and phasing out coal power.

I feel UK renewable energy companies can benefit tremendously given recent trends. Here are three shares I’m looking at in this space that could explode in 2022.

EVs take off

If I had to pick one industry that grew enormously in 2021, it has to be electric vehicles (EVs). Car giants are increasing their EV offerings and global markets are opening up infrastructure possibilities that could enable the long-needed switch. And this is where firms like Nexus Infrastructure (LSE: NEX) stand to benefit.

The company’s primary focus is civil engineering and outfitting new homes with utilities. But it also specialises in installing EV charging ports in homes. Last year, the government passed legislation that made EV ports mandatory in all new homes in the country from 2022. This is great news for Nexus because it already works with established builders like Persimmon and Taylor Wimpey. EV ports can be an auxiliary service the company provides, which already gives it a large market share in an emerging space.

It should be noted that a lockdown remains possible given the Omicron spread. And Nexus’s primary business, civil engineering, could be affected given rising construction material shortages and inflation. This could eat into revenue and cause its share price to fall. And Nexus shares already look slightly expensive at 222p, at a forward price-to-earnings ratio of 34 times. But I’m watching this renewable energy stock closely to try and find the optimal entry point for 2022 and beyond.

Future power?

Eqtec (LSE:EQT) is a waste-to-energy company that has patented gasification tech to solve two separate environmental issues. The company uses waste to produce gas fuel to power industries. But this innovative tech is a risky pick that has high potential. And a lot of its future revenue rides on massive adoption.

Its share price has remained dormant for nearly a decade now, falling below 10p in 2015 and never recovering. But a new three-year deal with Toyota Motors and two new power plants could breathe life into this renewable energy stock. The company could build recent developments and work towards wider adoption, which is why it is on my watchlist. However, this remains a speculative pick for my portfolio.

The next company on my list is ITM Power (LSE:ITM). The hydrogen electrolysis machines the company makes separate hydrogen from water and use clean hydrogen as fuel. This process has zero carbon by-products, which is vital. Hydrogen as a fuel source is still in its infancy, in terms of adoption. This makes me optimistic about ITM’s future potential.

Despite impressive tech, the energy firm was plagued by a massive debt pile in 2021, which led to a poor showing last year. The loss-making company expects a 31% increase in projected revenue which could plug the £250m debt hole. And right now, the company is at a crucial point in the market and could take off in 2022, which is why it is on my watchlist.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

These penny stocks soared in 2021! Here’s what I’d do now

Paul Summers — Tue, 04 Jan 2022 07:34:25 +0000

Picked carefully, penny stocks can prove incredibly profitable. One of the biggest challenges, however, is knowing when the smart money has already been made. Today, I’m asking whether this is the case for three of last year’s big winners.

Lookers

A penny stock that did particularly well in 2021 was car dealership Lookers (LSE: LOOK). Its shares climbed 66% as demand for new and used vehicles from cashed-up drivers outstripped supply. Back in September, the small-cap revealed record first-half numbers. Underlying pre-tax profit rocketing to £50.3m over the six months to 30 June, compared to a loss of £36.5m in 2020.

So what’s the outlook for Lookers? Well, there doesn’t look to be any sign of vehicle demand falling just yet. Used-car prices in December were up 28% on the previous year. A P/E of six also seems very cheap, considering the company’s potential to benefit from the growing popularity of electric vehicles.

Then again, there’s also an argument for saying there will come a point when people simply won’t pay inflated prices and demand will moderate. Margins in this line of work are normally very slim too.

On balance, I think Lookers could still do well next year and I’d still consider taking a small position today. But will it rise another 66%? I doubt it.

e-Therapeutics

e-Therapeutics (LSE: ETX) is another penny stock that’s been in scintillating form this year, rising 157%. Contrast this with the FTSE 100‘s 12% gain and it’s not hard to see why small companies appeal to retail investors.

As impressive as this performance is however, there are a few things that make me cautious. While its technology is clearly useful — allowing scientists to computationally test potential therapeutic interventions and drugs — e-Therapeutics remains unprofitable. That could prove problematic in the event of a major market sell-off. Investors tend to dump ‘jam tomorrow’ businesses first.

Regardless of whether or not a crash happens in 2022, a second thing worth noting is that less than half the company’s shares are actively traded. This illiquidity means it won’t take many transactions to cause violent shifts down as well as up. The former could happen even if e-Therapeutics is in something of a sweet spot, thanks to the pandemic.

Considering the above, I think there are potentially better opportunities in the market this year and I wouldn’t be a buyer of the stock now.

88 Energy

Alaska-focused, Australia-based oil and gas company 88 Energy (LSE: 88E) is a final penny stock that did superbly in 2021, rising 167%. There are multiple reasons for this, including the company’s efforts to improve its balance sheet (through the sale of tax credits) and the gradual increase in the price of crude oil.

Unfortunately, a lack of profits once again leaves me cold. Befitting a company in this space, it’s also worth pointing out that 88 Energy shares have been volatile. The very same shares have traded for a little as 0.41p and as much as 4.7p over the last 12 months. They currently change hands for 1.41p a pop. As such, I can’t see this penny stock appealing to anyone other than speculative investors.

While the shares may continue to rally further in 2022 (most likely to do with drilling activity surrounding its Merlin-2 well), I’m content to watch with interest from the sidelines. As far as my own portfolio is concerned, it’s too hot to handle.

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2 high-potential penny stocks to buy right now

Stuart Blair — Mon, 22 Nov 2021 15:43:19 +0000

Typically, penny stocks are known for their high volatility and low market caps. This often makes them a riskier investment than many FTSE 100 stocks, yet the potential for growth may also be larger. These are two penny stocks I’d buy today with the view of holding them for the long term.

Early stages of development

Greatland Gold (LSE: GGP) is an interesting case because it hasn’t actually started making any revenues yet. Instead, the gold miner is still in its exploration stages, and no mining has commenced. This process seems to be going very well, however, hence the reason for the company’s £600m valuation. Indeed, at the company’s flagship Havieron deposit, it is estimated that there is as much as 4.2m ounces of gold. This means that the company’s potential is massive.

However, the GGP share price has been falling recently and is currently 35% lower than at this time last year. This is partly because the price of gold has fallen to around $1,850 per ounce, far lower than the $2,000 it hit last year. Further, many investors have used last year’s incredible rise to bank profits.

Recently, the penny stock has fallen further, thanks to an equity raise. Indeed, the company issued 82,000,000 shares at 14.5p, a 10.5% discount to the closing price on 17 November. Through this equity raise, the company has raised £11.9m, which will be used to speed up the development of the Havieron gold deposit and be used for working capital. Overall, while I am slightly concerned that this equity raise occurred because GGP was running out of cash, of which it had £6.2m as of 30 June 2021, I still believe it is good for the long term. This is because it will hopefully allow it to start mining quicker.

As such, although there are several risks in buying a pre-revenue company, I feel that GGP’s potential is hard to ignore. Therefore, I may buy more shares while it’s priced at around 15p.

A slightly more developed penny stock

Pan African Resources (LSE: PAF) is another gold miner, yet one which is actually making profits. And with gold priced significantly higher than it was pre-pandemic, these profits have been growing. In fact, in the most recent full-year trading update, it recorded profits after tax of $74.7m, an 69% increase from last year. This enabled it to announce a record dividend of 0.916p per share, equivalent to a yield of around 5%.

Largely due to fears about inflation, the price of gold has also been able to rise recently, and there are some hopes that it can re-reach last year’s prices. This would have a majorly positive impact on the PAF share price.

But like many other penny stocks, there are of course risks. For one, mining in South Africa has had a turbulent history, with strikes and miner deaths common. Two years ago, PAF even had to halt production for a few days due to protests. This is a risk that must be considered with any mining company, and it’s no different for PAF.

Nonetheless, I’m still confident in the company’s prospects, which is why I originally bought shares. At a price-to-earnings ratio of around seven, the shares are also cheap and therefore, I may buy more.

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Stuart Blair owns shares in Greatland Gold and Pan African Resources. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A 5.4% dividend yield penny stock to buy now

Stuart Blair — Thu, 16 Sep 2021 06:40:56 +0000

There are many different types of penny stock. Some have been beaten down over the past few years and are occasionally great contrarian buys. Others are still in their infancy and may be experiencing massive growth. But very few offer dividend yields of over 5%. The gold miner Pan African Resources (LSE: PAF) does just this. Here are the reasons why I’d buy today.

Trading update

Yesterday’s trading update was excellent, and although the stock rose around 4%, I think there’s plenty more to go. In fact, due to an increase in gold production, to over 200,000 ounces, the company saw record annual profits after tax of $74.7m. This is a 69% increase from last year.

In addition to the healthy profits that were generated, PAF was also able to reduce net senior debt by 46% to $33.7m. This means that the company has finished its financial year with a far healthier balance sheet. Accordingly, it should be able to increase how much money can be returned to shareholders.

And it’s doing just that. Due to the excellent results, the dividend has been raised by 28.5% to a record 0.916p per share. This equates to a dividend yield of 5.4% at the penny stock’s current share price. It is also comfortably covered by profits, which will allow the group to continue to invest in itself and reduce debt further.

In addition to the record dividend, the board has also approved a share buy-back programme, of which details will be announced soon. Over the past few years, PAF has not bought back its own shares, so the fact that it’s starting to do so now shows real optimism. It should hopefully have a positive effect on the PAF share price.

Other factors

One reason why PAF was so successful in the past year was due to the high price of gold. In fact, last year, the average price of gold received was $1,826 an ounce, compared to $1,574 the year before. This demonstrates the company’s reliance of the price of gold though, a factor which may hinder it in the future. Indeed, the price of gold has already fallen below $1,800, and many fear there is further to fall. This is the main risk with this penny stock.

Even so, other than the potential for the price of gold decreasing, there are currently no other signs that this was a one-off year. For the year ending June 2022, PAF remains committed to producing a minimum of 195,000 ounces of gold, and I believe that it will be able to exceed this. And it also hopes to increase shareholder returns further, a sign that the best is yet to come.

What’s next for this penny stock?

For now, I feel that short-term volatility will continue. But for the long term, I’m confident and this is the reason why I originally bought PAF. I also believe that the stock has been oversold in recent weeks. As such, it currently trades on a very low price-to-earnings ratio of 6. This illustrates that the share price is too low, and I’d have no hesitation in buying more shares.

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Stuart Blair owns shares in Pan African Resources. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.