A stock is typically placed into the “penny” category if it has a low share price of less than £1 and the total market capitalisation is less than £100m.
But which ones are our free-site writers keen on for the years and decades to come?
Jupiter Fund Management
What it does: Jupiter Fund Management offers a range of actively managed strategies to UK and international clients, including equities and fixed income.
By Paul Summers. The cost-of-living crisis has been tough on asset managers with money being withdrawn at an alarming pace. Jupiter Fund Management (LSE: JUP) is just one of many ‘victims’ in the space. Shares are down nearly 40% in just twelve months.
However, I think this penny stock now looks cheap on a valuation of less than eight times forecast earnings. Although not guaranteed, there’s a 6.2% dividend yield in the offing too.
An immediate turnaround is probably asking too much. Some of Jupiter’s star managers have now left and justifying the high fees remains tricky in the current climate when many cheaper passive investment products are delivering better returns.
But I do think there’s at least a chance that buying now might prove lucrative further down the line. Once interest rates are cut and investing becomes possible for more people, confidence could return in spades.
Paul Summers has no position in Jupiter Fund Management
Michelmersh Brick Holdings
What it does: Michelmersh Brick Holdings sells products to the homebuilding and repair, maintenance and improvement sectors.
By Royston Wild. Britain’s housing shortage has hit crisis levels. It is likely that the next government will have to ramp up construction levels considerably to meet the needs of a growing population.
The current Conservative government has estimated that up to 300,000 new homes are required every year.
It’s a scenario that will play into the hands of companies like Michelmersh Brick Holdings (LSE:MBH). This penny stock produces more than 120m clay bricks and pavers a year, and is a formidable player at the premium end of the market.
Today the company trades on a forward price-to-earnings (P/E) ratio of 9.4 times. It also carries a corresponding 4.7% dividend yield. I find this all-round value highly attractive.
Brickmaking requires huge amounts of energy, leaving Michelmersh vulnerable to spikes in electricity costs. But the company has set up price contracts for 70% of its predicted power requirements in 2024 to reduce this risk. It also has arrangements in place for the following two years.
Royston Wild does not own shares in Michelmersh Brick Holdings.
Michelmersh Brick Holdings
What it does: Michelmersh Brick Holdings is the UK’s largest specialist brick manufacturer and owns a collection of premium brands.
By Ben McPoland. I’d feel comfortable tucking a few shares of Michelmersh Brick Holdings away in my portfolio for the long term.
The firm manufactures and distributes specialist clay bricks. These tend to be a bit more pricier, resulting in better profit margins.
Unfortunately, high inflation and interest rates have hit the construction market. This has weighed on the share price, which is down about 32% in three years.
However, the company continues to grow. In 2025, brokers expect a £10.2m net profit on revenue of around £84m. That’s up from 2018’s revenue of £46.3m and £5m net profit.
Dividend growth has been strong too, with the payout growing at an average of 7% over the last few years. The forward yield is a respectable 4.6%, while the stock is trading at just 9.7 times earnings.
Ongoing weakness in the construction sector is a risk. However, net migration to the UK is projected to remain strong in the coming years, so I expect plenty of construction long term. This should boost sales of bricks (premium or otherwise).
Ben McPoland does not own shares of Michelmersh Brick Holdings.
Topps Tiles
What it does: Topps Tiles runs a network of depots and websites selling tiles and other flooring materials to trade and retail customers.
By Christopher Ruane. When the economy weakens, spending on homebuilding and DIY can fall – sometimes significantly. I that risk explains the ongoing weakness in the share price of Topps Tiles (LSE: TPT), down 13% over the past year.
Across five years, the shares have fallen 41%. The company has been facing challenges. In the first half of its current financial year, total sales fell 6% year on year.
That said, the prior year period had been Topps’ best ever. The business remains solidly profitable and the current share price means it offers a dividend yield of 8.4%.
Demand may vary but tiles are here to stay over the long term — and Topps sells one in every five bought in the U.K.
It has developed an extensive online presence across a range of platforms. I think that positions it well for future growth alongside its physical depots, ideal for the heavier weight of large orders from the trade.
Christopher Ruane owns shares in Topps Tiles.
The post 3 penny stocks Fools actually love for the long term! appeared first on The Motley Fool UK.
We think earning passive income has never been easier
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Get your free passive income stock pick
More reading
Penny stocks: 1 I own and 1 I’d love to buy
The Motley Fool UK has recommended Jupiter Fund Management Plc. 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.
