I think buying penny stocks can be a great way to gain exposure to some of the market’s fastest-growing small businesses.
However, this strategy can also be precarious. It’s certainly not suitable for all investors. That’s why I only have a modest allocation to penny stocks in my portfolio.
And recently, I’ve been looking for more small-cap stocks to buy for my portfolio. Here are two shares I’d buy with a relatively small investment of £2,000.
Penny stocks to buy
Tribal (LSE: TRB) provides software and services to the international education market. The company reported a mixed year in 2020.
In the first six months of its financial year, overall revenues ticked lower by nearly 4%, in constant currency. But recurring revenues increased 3.3%.
This was a positive development. The company is in the process of transforming itself into a pure-play Software as a Service (SaaS) enterprise. As such, management is targeting recurring revenue growth.
What’s more, the group is also focused on building its product offering. It recently acquired Semestry Limited, which adds cloud-based Scheduling and Timetabling capability to its Tribal Edge ecosystem software. This will provide opportunities to upsell products and expand into new markets.
It looks to me as if Tribal is firing on all cylinders. However, the group is likely to face some challenges as we advance. It’s still a relatively small business. As such, like many penny stocks, it’s likely to face significant competition in the future.
Further, smaller companies can also struggle to raise capital to fund expansion.
Despite these risks and challenges, I’d buy the stock for my portfolio today.
Reverse takeover
I’d also buy Insig AI (LSE: INSG) for my portfolio of penny stocks today. This is a leading AI and machine-learning company servicing the asset management industry. It recently came to market following the reverse takeover of Catena Group.
The firm offers a suite of tools designed to help asset managers streamline and modernise their processes. These include a portfolio management tool and a tool for “developing and executing a data-led ESG investing strategy.“
The company is still in its early stages, so it’s a risky proposition. It’ll publish more information on its strategy and growth over the next few quarters.
Nevertheless, I think this company is worth adding to my portfolio of penny stocks for its potential. Demand for technology, particularly in the financial sector, is booming. And there are only a few corporations on the market that offer investors exposure to this theme.
Still, as noted above, Insig hasn’t had time to prove itself just yet. There’s only limited information available on the business and its prospects.
Therefore, this investment might not be suitable for all due to the risks involved. It may turn out that buyers aren’t interested in the company’s products.
