Penny stocks are generally thought of as those with share prices under £1, and market-caps of less than £100m.
They can bring a lot more risk. But if we choose carefully, I reckon we can find ones that can break through the pound barrier — and maybe go a lot further.
Asset management
My first choice is easily the best name of today’s chosen three. It’s Frenkel Topping Group (LSE: FEN), and it doesn’t make things for pizza or cakes.
No, Frenkel Topping is an independent financial adviser and wealth manager. And its share price has had a bad couple of years. But it’s up 65% in five years.
That’s a good overall performance, considering the way so many investment-related stocks have been under the hammer in recent years.
Broker forecasts look good, with earnings growth on the cards. If they’re right, we’d see the stock’s price-to-earnings (P/E) ratio dropping to about 10 by 2025.
There’s a modest dividend too, with a yield approaching 3%. That’s not the biggest, but it looks like it’s growing.
I think the big risk is that high interest rates could drive investors away from the firm’s services.
But I could see decent long-term growth here.
Bricks
My second pick is something simpler, Michelmersh Brick Holdings (LSE: MBH). It makes bricks, as the name suggests, and tiles and things like that.
The share price has had a surprisingly rocky five years, up 7%. But since the house building market started to decline, it’s fallen.
We had a trading update on 23 November, which speaks of a resilient performance, so far.
Solid earnings forecast for the next couple of years would give us a P/E of 8.7, dropping to 8.3 by 2025. And there’s a dividend yield of more than 5%.
The dividend was cut in the pandemic, but it’s already back above pre-2019 levels.
An extended period of high mortgage rates could keep the pressure on the construction business. And that would surely have a knock-on effect on demand for Michelmersh’s products.
But for those with a positive view of housebuilding for the long term, I think this could be a great choice right now.
Investment trust
I like CT UK High Income Trust (LSE: CHI), for diversification. The share price is down 12% in five years, as funds available for investing have taken a hit since inflation and interest rates started to soar.
The trust invests mostly in UK stocks and doesn’t have a wide range of holdings. It couldn’t really, with a market-cap of just £90m.
But it does hold stocks like Shell, British American Tobacco, AstraZeneca and Vistry Group. I rate those all as good value.
It faces the same risks as those individual stocks. And perhaps more so, as I suspect investors are more likely to go for bigger investment trusts when things look brighter.
But we’re looking at a dividend yield of 6.8% here. And the shares are on a discount of 6% to net asset value.
The post 3 penny stocks I think could smash through £1 appeared first on The Motley Fool UK.
Like buying £1 for 51p
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See the full investment case
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc and British American Tobacco P.l.c. 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.
