3 penny stocks I’d buy for my ISA in April

Penny stocks aren’t without risk, but they can deliver big gains. Roland Head has found three small-cap shares he thinks are potential winners.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many stock market investors are looking for ‘baggers’ — stocks that can deliver gains of 100% or more. Many of these future winners start out as penny stocks, with share prices under 100p.

A word of warning — not all penny stocks are cheap. Some deserve their low ratings, and some will fail altogether.

Even so, I reckon I’ve found three small-cap penny stocks which offer good value, reliable profits, and the potential for big gains. Should I buy them for my stocks and shares ISA?

Safer than houses?

All the recent reports I’ve seen from UK housebuilders suggest demand for new housing remains strong. One of my chosen plays in this area is AIM-listed firm Brickability Group (LSE: BRCK).

Brickability supplies bricks, roofing and plumbing and heating products under a number of brands. The company is run by Alan Simpson, who owns a 16% stake in the business where he’s worked for more than 30 years.

This pedigree suggests to me that Simpson should know how to prepare for the risk of a housing market slump. Brickability’s sales and profits dipped last year, but the company says it’s seeing improving demand for its products. Brokers expect profits to bounce back this year, putting the stock on 12 times forecast earnings.

I see this as a potential long-term growth stock. I’d be happy to buy a few shares in this penny stock and tuck them away.

A 9.5% dividend yield

My next pick is a property stock aimed at income seekers. AEW UK REIT (LSE: AEWU) owns a mix of industrial, office and retail property in regional locations across the UK.

REITs (Real Estate Investment Trusts) generally offer higher dividend yields, but AEW’s yield is unusually high, at 9.5%.

As a potential buyer, I have two questions. Is the payout safe, and will it grow? Personally, I don’t expect the firm’s current payout of 8p per share to grow for the foreseeable future. My analysis of AEW’s latest accounts suggest the dividend is still affordable, but only just. Management has warned the economic outlook is uncertain, which could affect rent collection.

During the final three months of 2020, AEW collected 90% of rent due from its tenants. If this figure improves in 2021, I reckon the dividend will probably be safe. But if rent collections worsen, then I’d expect a cut.

I don’t often see a chance to lock in a 9.5% dividend yield. I’d be happy to open a small position here, despite the risk of a cut.

An unloved penny stock

My final pick is Appreciate Group (LSE: APP). This company — previously known as Park Group — sells products such as high street gift vouchers and Christmas saving schemes. It owns the Love2shop and highstreetvouchers.com brands, among others.

The Appreciate share price is down by about 50% on a five-year view. The obvious risk is that the growth of online retail will make gift vouchers redundant. Last year was difficult for obvious reasons, with so many stores closed.

However, I think the concept of gift vouchers remains valid online, and recent trading seems to support this. Appreciate reported a 42% increase in billings in December, which was said to be the best month ever.

This penny stock trades on 11 times forecast earnings for 2021/22, with an expected dividend yield of 4.6%. I’m tempted to buy at this level.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head 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.

More on Investing Articles

Young female analyst working at her desk in the office
Investing Articles

£20k invested in Barclays shares 5 years ago is now worth…

Barclays shares looked like a great investment for growth and dividends. However, after the stock surged, the value proposition isn’t…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

Should I avoid the FTSE 100 like the plague?

The FTSE 100 has enjoyed a stellar 2025 against a rocky economic backdrop. Is it time to get out of…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

£10,000 invested in Greggs shares 5 years ago is now worth…

Investors flocked to Greggs shares for an appealing mix of growth prospects and passive income following the pandemic. But things…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

I’m getting nervous about the Lloyds share price

The Lloyds share price has soared by more than 50% over the past 12 month, easily beating the wider FTSE…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Meta stock is up 17 days in a row! Time to buy this record-setter?

Our writer wonders whether now is the time for him to add Meta stock to his ISA portfolio after its…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

4 good reasons why I’m avoiding cheap Lloyds shares like the plague!

Lloyds shares look dirt cheap based on earnings, dividends, AND asset values. But is the FTSE 100 bank a risk…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

31% revenue growth! This top growth stock just keeps powering on

Shopify (NYSE:SHOP) smashed it in the fourth quarter, wrapping up an outstanding 2024. But is this growth stock worth considering…

Read more »

Investing Articles

Down 23% in a year, is Frasers Group a FTSE 250 bargain?

Christopher Ruane explains why he is taking the Buffett approach by sticking to what he comfortably understands. That does not…

Read more »