As the economy continues to reopen, I’ve been looking for penny stocks to add to my portfolio. While investing in these smaller businesses can be riskier than buying blue-chips, I think small-caps stand to benefit more from the economic reopening than their larger, international peers.
With that in mind, here are three penny stocks I’d buy in June.
Penny stocks to buy
Total instructions increased by 12% to 60,238 in the financial year ending 30 April. In addition, the number of instructions in the second half significantly exceeded management expectations. Off the back of this strong trading performance, management has decided to repay furlough cash received from the government.
The main risk facing the company is the risk of a property market slowdown. The group still isn’t profitable, which could hold back growth. Both of these risks could destabilise the firm’s outlook.
Despite these risks and challenges, I’d buy the stock for my portfolio of penny stocks, considering its increasing awareness among consumers.
Another company I’d buy is construction materials group Severfield (LSE: SFR). Initial figures appear to show the construction sector has been one of the fastest industries to recover from the pandemic. Severfield is benefiting from this trend.
According to the firm’s latest trading update, it’s been “trading at normal (pre-pandemic) levels, in line with government and industry guidelines, since the beginning of Q2 of the 2021 financial year.“
Further, management notes that the company has a “strong” order book worth £315m, which “supports trading throughout the 2022 financial year and beyond.“
That said, while the construction sector appears to have recovered quickly, it’s always one of the first to suffer in a downturn. Therefore, if the UK economic recovery starts to stagnate, Severfield’s growth may come shuddering to a halt. In many ways, all penny stocks are exposed to this risk.
Initial indications suggest consumers have been more than happy to splash lockdown savings as the hospitality industry has reopened over the past few weeks. This implies the future for Time Out (LSE: TMO) is positive.
While this company does have its risks, mainly the fact that it’s still losing money, and has high costs, I think it has appeal as a recovery investment.
Time Out is best known for its media business. However, it’s also been spending heavily on a marketing concept in recent years, which brings together customers and food businesses. Unfortunately, this business has been flattened by the pandemic, but it could have strong recovery prospects.
To strengthen its balance sheet and prepare for reopening, Time Out recently raised £17m from investors. However, as it’s still losing money, there’s a risk of further cash calls down the line.
Still, I’d add the share to my portfolio of penny stocks for its recovery potential.
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Rupert Hargreaves has no position in any of the shares mentioned. In many ways all penny shares stocks are exposed to this riskThe 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.