I’m always on the search for great penny stocks. While these shares carry risk, they also have the potential to deliver some fantastic returns. Here are three I’d buy.
So far Mitie (LSE: MTO) is up over 60% this year and even more in the past 12 months. I think it could go higher. It’s a facilities management and professional services company. And its customers include banks, retailers, hospitals, schools and government entities.
The third-quarter trading statement highlights that performance has improved since lockdown measures have been eased. I find it encouraging that its year-to-date contract wins and renewals are in excess of £770m. Clearly, the company is doing something right and hence, I’d buy the stock.
Customers have responded positively to Mitie’s ‘Getting back to business’ initiative. In fact, revenue from providing critical services that support the UK’s battle against Covid-19 has increased.
The company’s financial position is improving as well. As of the end of 2020, its net debt stood at £72.4m compared to 2019 when it was £338.1m. It’s good to see that it’s heading in the right direction.
But I’m concerned that any further Covid-19 setbacks could hinder Mitie’s progress, and thereby its revenue.
Hammerson (LSE: HMSO), the commercial property landlord, was hit hard by the pandemic. It owns numerous shopping centres across the UK and Europe. And it doesn’t help when some of its tenants have gone bust or struggled generally.
But despite this, I’m still bullish on this penny stock. There are signs of a recovery happening. Rent collection is slowly but surely improving, as is footfall across Hammerson’s locations.
It’s worth mentioning here that shopping is a social activity, and most people have been stuck in their homes for over a year. As the vaccine rollout continues and lockdown restrictions ease, I believe more customers will socialise and pay a visit to the shops. This should boost the Hammerson share price.
But I’m under no illusion that this will be a fast recovery. Its bounceback could be long-drawn-out and any further lockdowns are likely to dampen footfall and hit revenue.
I’ve recently turned bullish on another penny stock, Card Factory (LSE: CARD). The share price crashed after it released further details on its refinancing package. It said that it would have to raise £70m through a share placing.
I commented earlier this week, that this fundraising caught me off guard. But clearly the company needs more assistance after the pandemic took its toll on the business.
My initial concern is whether it can raise this additional money. Seeing the penny stock falling, investors are somewhat wary too. But has it done enough to convince the market that it can survive?
I’m confident that the improving trading conditions should help. It’s seeing fewer customers coming through its doors but they’re spending much more. This is encouraging news.
I reckon the stock could be volatile until it raises the money from the share placing. But I can stomach this volatility as a long-term investor. And I’d use this time to snap up some shares.
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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory. 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.