Many investors mistakenly believe that penny stocks are riskier than other investments. That’s not always the case. Any company can qualify as a penny stock as long as its shares are trading for less than £1 (100p). As such, mid-cap and large-cap equities can also qualify as penny shares.
With that in mind, here are five penny stocks I’d buy ahead of the delayed economic reopening in July.
Penny stocks to buy
The first equity is utility supplier Centrica. This company has been struggling for years and, last year, a substantial decline in demand for energy from its business customers hit its bottom line.
I think demand should recover as the economy reopens. What’s more, the company has also been slashing costs and reducing debt. This should help the business’s recovery as it begins to take shape. Those are the primary reasons why I’d buy this corporation.
Having said that, Centrica’s recovery shouldn’t be taken for granted as the company has been struggling to fight off smaller competitors for years. If competition continues to grow, the organisation’s turnaround may flounder.
Commercial property landlords have suffered enormous challenges over the past 12 months. Companies like Hammerson have had to pull out all of the stops to prevent insolvency.
However, as the economy reopens, initial indications suggest shoppers are returning to high streets, shopping centres and retail outlets. This could be great news for Hammerson and its peers. That’s why I’d buy the company for my portfolio of penny stocks today.
Still, as mentioned above, the company nearly failed last year due to its high debt levels. This risk continues to hang over the stock, and getting borrowing down is the most prominent challenge management faces.
On the same theme, I’d also buy Regional REIT. This regional office owner should benefit as workers return to offices over the next month. Its high level of rent collection over the past 12 months (98.2%) stands testament to its high-quality tenant portfolio. Its most significant challenge is also debt.
It has been six years since Capita reported any organic growth at its operations, but management believes that will change this year.
According to the company’s latest trading update, despite the lockdown in the first quarter, the group expects to report organic revenue growth for the first time in six years in 2021.
On top of this, the group is looking to realise £700m from asset disposals to strengthen its balance sheet. I think these predictions are incredibly encouraging. That’s why I’d buy the equity for my portfolio penny stocks today. But, of course, there’s a risk the corporation may miss these targets. If it does, the stock’s valuation may fall as investors reconsider the company’s prospects.
I think Lloyds Bank is one of the best ways to play the UK economic recovery over the next few years. Despite the fact it’s one of the largest banks in the UK, the stock trades for 48p. So it technically qualifies as a penny stock.
Increasing consumer and business confidence may lead to higher demand for loans, which would help improve profitability. On the other hand, an economic slowdown would hurt the group’s recovery. This is probably the biggest challenge facing the stock right now.
Rupert Hargreaves owns shares in Regional REIT. The Motley Fool UK has recommended Lloyds Banking Group. 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.
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