Freight hero

I’d buy Xpediator (LSE: XPD) shares as Europe steadily recovers from the nightmare of Covid-19. It’s a penny stock that offers freight services by air, across land or by sea. It’s therefore well placed to benefit from lockdowns ending and trade flows picking up as economic conditions improve. I’m also a big fan of Xpediator because its warehouse, logistics and e-commerce fulfilment operations leave it well placed to exploit the internet shopping boom.

Trading at the firm is already at the stage of bouncing back strongly. Trading across all three of its divisions had continued strongly in 2021, it announced last month, with revenues at the company’s core Freight Forwarding unit experiencing “strong increases”. As a consequence, Xpediator said it expected full-year turnover to leap by at least 42% from 2020 levels.

I like its exposure to fast-growing economies in Eastern Europe. This helped Freight Forwarding sales to jump so robustly last year. But a word of warning: it’s worth remembering that growing political turbulence in this part of the world could pose a threat to shareholders.

Another penny stock for the e-commerce revolution

Like Xpediator, I think DX Group’s (LSE: DX) a great way for me to make money from online shopping. It’s a courier with operations in the UK and Ireland, giving it access to what is by far Europe’s biggest e-commerce market. Pleasingly DX Group is expanding rapidly to make the most of this opportunity. It’s opened six new depots and expanded another since last summer. And it plans to open another 12 in the next two years.

Technological progression, combined with the huge investment retailers and manufacturers are making in e-commerce, means that the quantity of parcels that DX Group shifts should continue rising. My main concern with buying this penny stock is that fuel prices are rising to fresh highs week after week. The increasing cost of fuelling its vehicles is a big danger to future profits growth.

Why I’d buy despite recent suspension

I can’t talk about DX Group without discussing a particular elephant in the room. In January the company’s shares were suspended from trading due to its ongoing failure to release full-year financials. This is related to a corporate governance inquiry, the company has previously said, and a failure to get those numbers out (for the 12 months to June 2021) has led to the resignation of auditor Grant Thornton.

It’s not a good look, clearly. But I’m encouraged by DX Group’s statement that the enquiry is “connected to a disciplinary matter” rather than the company’s trading performance or financial position. This is a stock I’d still strongly consider buying when the trading suspension eventually lifts.

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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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Lithium powered

I recently explained how exploding demand for low-emissions cars provides opportunities for UK share investors like me. Zinnwald Lithium (LSE: ZWND) is one electric vehicle (EV) stock I’m thinking of snapping up as a result.

This business owns a 100% stake in the Zinnwald lithium project in Germany. And so it will likely play a critical role in the production of EV batteries. Indeed, the asset is located slap bang in the centre of Europe’s car-building industry. Encouragingly, EV sales in Germany were the second-largest on the planet in 2020, behind only China. Production is yet to begin at Zinnwald. And while the business is making good progress towards maiden output, any issues on the development of the mine could have serious consequences for future profits. All things considered I still think it’s an attractive buy right now, however.

A great freight stock

The Covid-19 crisis poses an ongoing risk to penny stock Xpediator (LSE: XPD). This cheap UK share provides freight management services across Europe. This leaves it vulnerable to fresh travel restrictions being imposed to curb resurgent infection rates. Demand for its services will also likely slump if the pandemic chokes off the economic recovery.

That said, there are a number of reasons why I consider this a highly attractive penny stock today. Its broad range of e-commerce services and its warehouse and logistics division should help it to thrive in the online shopping era. Demand for its customs clearance services is likely to grow in a post-Brexit environment. And its wide geographic footprint gives it strong exposure to fast-growing emerging markets and developed economies alike.

Ready to fly

The same travel restrictions threatening Xpediator might also create problems for Air Partner (LSE: AIR). The aviation services provider faces a sales hit, too, should rising environmental concerns reduce aircraft usage. According to the European Federation for Transport and Environment, private jets are 10 times more carbon intensive than standard airlines, and 50 times dirtier than train travel.

This penny stock provides charter services for aircraft such as private jets, an industry from which it sources the majority of profits. So the dangers created by the green movement are clear. While the Covid-19 crisis created some near-term danger, I think it could be also be argued that it might  manufacture long-term opportunity for the likes of Air Partner. This is because lingering infection fears might prompt wealthier individuals to charter their own planes instead of using standard carriers.

I also think Air Partner’s acquisition-led strategy, focussed on areas such as safety and security, will help reduce the risk of falling private jet activity to group profits. And the business is also bulking up its position in the freight market, which provides additional strength through diversification.

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Penny stocks in the driving seat

Used car sales are driving much of the growth for car retailers. So why is there so much demand for used cars right now? Well, a pandemic-related shortage of semiconductors is having a knock-on effect that’s causing delays in new car production.

Fewer new cars, and a limited supply of used cars is a recipe for keeping car prices elevated. This is resulting in car retailers like Vertu Motors (LSE:VTU) reporting “record profitability”. I’d say Vertu is one of the cheapest penny stocks available right now. Not only is it delivering a record trading performance, but it also has what I’d call a bullet-proof balance sheet. Having plenty of freehold property gives Vertu a decent margin of safety too, in my opinion.

The boom in profits could continue for now as the market conditions remain favourable. However, bear in mind that shortages are unlikely to last forever. At some point, things will normalise. And so might Vertu’s profits. Also, as in many industries right now, wage costs are rising. Vertu isn’t immune to these cost pressures so it’s something I’d keep an eye on.

Overall, the management team are experienced and look like they can navigate any challenges. I’d buy this penny stock today and park it in my Stocks and Shares ISA.

Another one to look at

For similar reasons to liking Vertu Motors, I also like Lookers. This British motor retail company recently reported strong trading too. It now expects “underlying profit before tax for 2021 to be materially ahead of its previous expectations”. I like the sound of that.

As interest in electric vehicles continues to grow, Lookers seems well-positioned to benefit. That said, uncertainty remains regarding the supply of new vehicles. And like Vertu, the boom in used car sales should return to normal levels one day. But overall, I like Lookers and would consider buying the shares.

Delivering the goods

With many companies reporting shortages and logistical issues, it might be a good time to look at Xpediator (LSE:XPD). This small British company provides international freight management services. In recent months, it reported strong trading, plus rising sales and profits. The positive trends should continue in the second half of the year, in my opinion. And with many logistics businesses, that’s when most of the profits are made.

Brexit has also created some challenges regarding logistics and customs. But this should bode well for Xpediator. It should benefit from the need for more customs clearance services.

A word of warning, however. This business is competitive and operates at relatively low profit margins. And although trends are currently positive, that could normalise next year. That said, given its cheap valuation and positive current trends, I’d consider buying this penny stock.

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Freight giant is booming

A steady improvement in the global economy bodes well for Xpediator (LSE: XPD). Why? Well this penny stock provides freight management services which get goods moving across the breadth of Europe, whether by air, sea or road.

It also offers warehouse and logistics services to customers and has operations in the fast-growing e-commerce services segment too.

Xpediator shares go for 69p a pop, below the penny stock limit of £1. And the strength of trading following the Covid-19 crisis has even taken the company itself aback.

The freight giant once again lifted its profits forecasts for the full year back in June. It’s worth remembering that its strong performances could hit the buffers if the Delta mutation continues to send coronavirus infection rates higher.

But, over the long term, I think this penny stock could still prove a wise UK share to buy, helped by its exposure to Eastern European emerging markets.

Follow the Van

Van Elle Holdings (LSE: VANL) — which trades at 45p per share — is the largest ground engineering contractor on these shores. In my opinion this puts it in a terrific position to ride the strong rebound in the British construction sector.

Indeed, latest financials this month showed its order book rose to £34.7m as of 9 August. This was up from £26.4m at the same point in 2020.

The company’s core markets were operating near capacity towards the end of the last financial year (to April). And, pleasingly, the bidding pipeline for its Rail division has improved in recent months.

Though, like any UK share, this penny stock isn’t without risk. A shortage of building materials and labour in the construction market could potentially choke off Van Elle’s recent recovery.

A penny stock for the pharma arena

I also think Sareum Holdings (LSE: SAR) could be a top penny stock to buy today and to hold for years. This UK healthcare firm specialises in producing drugs for the treatment of cancer and autoimmune disorders. And the company is making huge strides in these therapy areas, as recent testing updates show.

Of course there’s no guarantee Sareum (which trades at 6.8p per share) can keep its recent strong momentum at the lab bench going.

Drugs development is a notoriously challenging endeavour, and costs can soar and revenues can suffer if a product is delayed (or, in extreme cases, even binned).

However, I’m encouraged by the recent news flow coming out of Sareum on the R&D front.

And following recent fundraising it has a decent cash pile with which to continue its research, something which may alleviate the need to tap shareholders for cash again too soon.

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Indeed, investing in small firms can be incredibly risky. I think concentrating on already-established businesses is an easy way to reduce risk.

It’s also easier to see how an established business has fared in different market environments. I can’t do that with a newer enterprise.

Penny stocks on my watchlist 

Finsbury Food (LSE: FIF) is a good example. The baker, which produces cakes, bread and bakery snacks, has been a public business since 1995. 

Unfortunately, growth has stagnated during the past five years, but that’s set to change in the next two, according to analysts. City analysts have pencilled in a net income of £11.2m for 2021, the highest level in over six years. 

I’m always wary of City estimates, but it looks as if the firm is well on the way to hitting this projection. In a trading update published in May, the company announced that profit before tax for its 2021 financial year would be “no less than £15m.” That’s above projections. 

I think the company has the potential to build on this growth in the years ahead. That’s why I’d buy the firm for my portfolio of penny stocks as a growth investment. 

That said, it’s clear Finsbury Food has struggled to grow in the past. Therefore, there’s a chance 2021’s performance could be an exceptional year. Rising costs may eat away at profit margins and cause growth to slow. That’s something I’ll be keeping an eye on. 

As the economy reopens, the demand for goods and services is increasing. Rising demand is particularly acute in the logistics sector. Prices are rising as companies struggle to meet customer demand. 

Freight management 

To play this theme, I’d buy Xpediator (LSE: XPD) for my portfolio of penny stocks. This company provides freight management services. And demand for these services is increasing.

In fact, it’s rising so fast that the company has already increased its projections for the year. Management believes the enterprise is well-placed to deliver full-year adjusted pre-tax profit “in excess” of £8.5m.

By comparison, Xpediator’s cumulative net profit for the last three years was £7.2m. I think these figures illustrate just how much of an impact the current situation is having on the company’s bottom line. That is why I’d buy Xpediator for my portfolio of penny stocks today.

However,  it does have some significant weaknesses. Profit margins are incredibly thin. The average for the past six years is just 3%. That doesn’t leave much room for error. If costs rise substantially, the company’s profit margin could disappear. Moreover, profits could also decline if freight transactions return to pre-Covid levels.

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Xpediator

First up is freight management and warehouse service provider Xpediator (LSE: XPD). The company operates across the UK and Central and Eastern Europe.

As maybe expected, the pandemic hasn’t made life easy for the business. However, since dropping to 14p last March, shares have rallied almost 250%! A quick look at its most recent update on trading shows why. 

Back in January, the small-cap reported that profits in 2020 would likely be “significantly ahead of market expectations” following “higher than anticipated demand” for the company’s diversified services at the tail end of the year. Xpediator now looks set to report adjusted pre-tax profit of £7.2m in April. That’s up 40% on what it achieved in 2019.  

Naturally, the AIM-listed company won’t be everyone’s cup of tea. Operating margins tend to be very low in this line of work. Others may be put off by the company’s steadily increasing level of debt.

Even so, I think this momentum could continue in 2021. A forecast price-to-earnings (P/E) of 10 certainly doesn’t look too dear yet.  

Lookers

Another penny stock that could prove a great buy in time is car retailer Lookers (LSE: LOOK). This is assuming consumer spending recovers strongly once lockdown restrictions are lifted.

Following a decent recovery in H2, Lookers looks set to report underlying pre-tax profit of £10m for 2020. This compares favourably to the £4.2m achieved in 2019. It’s also better than the “small loss” penciled in by analysts. What’s more, LOOK’s management also expects to reveal a reduction in net debt from £59.5m in 2019 to £45m by the end of last year.

At 52p a pop, shares in Lookers are already up 150% since last July. Notwithstanding this, they’re still far below the 157p they were trading at five years ago.

As things stand, a price-to-earnings (P/E) ratio of 11 looks reasonable value to me. Then again, it’s worth noting that the arrival of the third wave of the coronavirus in the UK could mean analyst projections are quickly thrown out of the window.

Arc Minerals

A final penny stock — and one I own — is copper explorer Arc Minerals (LSE: ARCM). Thanks to the buzz around electric vehicles, mining stocks have garnered a lot more attention recently. ARCM’s share price is up almost 350% in the last 12 months! That said, I think the £66m-cap is still flying under most investors’ radars.

Focused on copper deposits in the western part of the Zambian Copperbelt, Arc has stakes in two subsidiaries, Zamzort and Zaco. The reason it’s come to my attention in recent months is the possibility of a deal with mining giant Anglo American.

Is this nailed on? Definitely not. Moreover, a recent placing by the company — and subsequent reduction in its share price — only serves to highlight how tricky investing in this sector can be, and why no one should invest more than they’re prepared to lose.

So, Arc Minerals is undoubtedly a high-risk play. However, I expect fireworks later in the year if (and that’s a big ‘if’) all goes to plan. 

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Today’s pre-close trading update for the year to 26 May contained more good news for those already holding the casual-clothing-to-wellies-seller.

At £218m, revenue was 17.2% higher than the previous year with the “strong momentum” seen in the first six months of the financial year and over Christmas continuing into the second half  — something the small-cap partly attributed to overseas growth.

Reassuringly, the 30 year-old company’s online operations “performed particularly well,” so much so that they now contribute 50% of the £159.1m revenue from retail. 

Wholesale revenues were 2.9% higher with strong growth reported in the US and Germany. In fact, approximately half of sales in this part of the business now come from overseas.

All this (and combined with cost savings) has led management to predict that underlying pre-tax profit will be “at the top end of the range” of analyst forecasts. So, somewhere near £15.3m. 

Stock in Joules was trading at 19 times earnings before markets opened. That’s clearly not as cheap as retail peers such as Next which also boasts a better yield (2.9% vs Joules’s 1%). 

Nevertheless, Joules does have qualities that investors tend to be willing to pay out for such as high returns on capital and plenty of cash on the balance sheet.

The potential for more growth overseas also goes some way to justifying the valuation, at least in my view. At this point in time, the company’s international business contributes ‘just’ 16% of total revenue — a proportion that I think will only increase over time, so long as management remain disciplined in their approach.  

Joules continues to look like a great business. Since I’ve already got a small holding in another clothing retailer, however, I’m prepared to sit on the sidelines for now. Should a general market wobble come along, I could be sorely tempted. 

Growth and income

Another small-cap impressing the market today was freight manager Xpediator (LSE: XPD).  According to the market minnow, demand for its services “remains strong.” In addition to trading in line with market expectations, it commented on seeing a lot of “bolt-on opportunities” which could generate value for the company, if acquired.

Aside from this, a number of management changes were announced, including the promotion of CFO Stuart Howard to CEO from September. Stephen Blyth — Xpediator’s current CEO — will move to the position of executive chairman and focus on developing the company’s strategy and merger and acquisition opportunities. My only slight concern here is that Howard will combine his CFO and CEO roles if a replacement for the former isn’t found in time.  

Right now, you can pick up Xpediator’s stock for just 9 times earnings. For a company that’s tripled in size in just two years and shows no signs of slowing down, that looks good value to me. Its asset-light business strategy (it doesn’t own a fleet of trucks and therefore has low overheads) also appeals, as does the secure-looking 4% dividend yield.

Still relatively unknown among retail investors, I continue to think that Xpediator could be worth buying as part of a diversified portfolio.

The post These small-cap stocks just keep growing. Time to buy? appeared first on The Twelfth Magpie.

Nevertheless, having the courage to buy what others are selling has at least the potential to be very profitable over the long term. In addition to benefiting from a reversal in a company’s share price, contrarians may also receive dividends that can be reinvested into buying more shares along the way, further improving their gains.

With this in mind, here are three possible recovery plays that, in addition to being relatively cheap to buy, also offer decent payouts.

Get paid to wait

Floorcovering product supplier Headlam (LSE: HEAD) is first up.

Thanks to concerns over declining pre-tax profit from to a weakening residential market and higher costs (not to mention the debacle at peer Carpetright), the company continues to be out of favour with the market. 

The shares are down a third in value from where they were back in 2017 and now trade on a price-to-earnings (P/E) ratio of just under 11. That’s beginning to look reasonable, particularly given the sizeable dividend on offer. 

Assuming it returns the predicted 24.9p per share in 2019, Headlam yields 6% at its current share price, covered 1.5 times by profits. As a comparison, the best cash ISA offers just 1.45%.

While margins aren’t exactly huge in this line of work, the company generates pretty decent returns on the money it invests. At the time of its last interim results, there was also £16m in net cash on the balance sheet. Full-year numbers are out on 6 March.

Next up is investment manager Polar Capital Holdings (LSE: POLR). After a pretty awful second half of 2018 during which investors pulled their money from its funds, the shares now appear to be stabilising. And given that they still trade on just above 10 times earnings, I think there’s decent money to be made in time.

Like Headlam, Polar Capital has a good balance sheet with the equivalent of over 20% of its market cap in cash. Right now, analysts are penciling in a total dividend of 32p per share for the 2018/19 financial year (ending 31 March). That leaves the shares yielding almost 6.5% at the current share price.

Of course, Polar could experience more volatility in the months ahead, particularly if Brexit negotiations fail and no deal is agreed. As such, a bit of pound-cost averaging may be prudent here.

Freight management services provider Xpediator (LSE: XPD) is the final stock on my list. Again, the company’s value has been hit hard in recent times, down 45% from the high of 85p hit last July. Based on last Monday’s trading update, this could be a great opportunity to build a position. 

Total revenues rocketed 54% to £179m over 2018 with over 14,000 customers now on the small-cap’s books. Two recent acquisitions appear to be bedding in well with more likely to follow.

For those concerned by the impact of Brexit, Xpediator stated that it had been “working closely with leading transport associations and port authorities to plan ahead” and boasts that its status as an Authorised Economic Operator will allow it to support companies looking for solutions to get their products to where they need to be. 

Available for just over nine times forecast 2019 earnings, it is set to yield almost 4% at the current share price. These payouts look secure and, importantly, are growing rapidly. 

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At times like these, it’s worth remembering that severely punished stocks can be the ones to stage the biggest comebacks when markets regain their composure.

Here are three quality businesses I’m considering buying if sentiment continues to weaken.

Losing its fizz

Thanks to the consistently high returns on capital it invests (ROCE) and a penchant for hiking dividends by double-digits, I’m a big fan of soft drinks maker Nichols (LSE: NICL). The only problem is that the stock has usually been expensive to buy. 

Following the recent market sell-off, however, the owner of the much-loved Vimto brand has seen its share price fall 13% in October alone. It’s now down 37% since peaking in value in April 2017.

Despite its small size when compared to industry peers like AG Barr and Britvic, Nichols is very much a global company with a presence in 85 countries. It won’t shoot the lights out in terms of revenue and profit growth, but this is compensated for by the stability offered by its portfolio of ‘sticky’ brands that consumers find hard to move away from.  

Trading on 18 times earnings for the current financial year, Nichols is still far from being screamingly cheap but most quality stocks rarely get to bargain bin levels. Should it continue falling, I’ll be all of out excuses not to buy.

Assets up

I became bullish on £107m cap investment manager Miton Group (LSE: MGR) this time last year. Unfortunately, I neglected to purchase its stock. By the beginning of October, the shares had almost doubled in value and now change hands on 15 times earnings.

When you take into account recent results, this shouldn’t come as a surprise. At the close of play on 30 September, Miton had a little under £4.87bn in assets under management, representing a rise of 38% on that held at the same time in 2017. Total net inflows soared almost 200% in the first nine months of 2018 to £927m. Given that index funds continue to gain support at the expense of active funds, that’s really rather impressive. 

With many investment managers seeing their shares hit, I’m prepared to continue sitting on my hands for a while longer in order to see whether ongoing weakness provides a cheaper entry point. 

Going cheap

My final pick is both the smallest company and biggest faller in recent months. 

Since reaching a high of 86p in July, shares in £62m cap freight manager Xpediator (LSE: XPD) have almost halved in value. I’m struggling to identify any specific reason for this. Perhaps early holders are merely banking some profit on the back of general market jitters.

Boosted by acquisitions, Xpediator’s revenue jumped 60.7% in the first half of 2018 with adjusted operating profit 44.2% higher at £2.1m. Margins are low, but it’s worth highlighting that, like Nichols, the Braintree-based firm generates very decent returns on the money it invests.

Xpediator’s stock now trades at a little over 10 times forecast earnings for the current year. There’s a 3.4% yield on offer at the current price, a fair return while owners await a recovery. 

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