Buying small-cap penny shares can be risky. But I see so many stocks that I think are undervalued in the aftermath of last year’s crash, that I’m convinced I’d be missing some opportunities if I ignored them. So here are three small-cap shares priced at under a pound that I have on my potential buy list.
Transport companies were hit hard by the pandemic, and that includes Stagecoach (LSE: SGC). Stagecoach shares are down 32% over two years. But the price has more than doubled since the market comeback started in November. In April, the price broke above the 100p level, but it’s since retreated to today’s 86p.
I don’t want to downplay the risk. Stagecoach carries a lot of debt, though it has slimmed down its operations. And the stock was out of favour with investors even before Covid-19. I also think this penny share could be in for a bit more volatility in the next year or two.
But as the country opens up further, I can see business improving and the share price strengthening. Initiatives to promote public transport, to help with the climate crisis, can’t do any harm either. I don’t see Stagecoach as a quick-profit investment, but I am looking at it with a five-year horizon.
Back to penny share status
I also have my eye on Card Factory (LSE: CARD), down 66% over two years. And though the price did start to pick up early in 2021, it’s turned south again since the beginning of May. The stock almost reached 100p, before falling firmly back down to penny share status at the current 59p.
It’s been another Covid-19 crash story, with Card Factory’s shops having to close during lockdown and sales suffering as a result. But I think we could be seeing an opening-up possibility here, as we head towards zero pandemic restrictions. There is plenty of competition, especially online, though the company is expanding its Internet channels. And we still don’t know how high street retail will recover, so there’s risk there too.
Card Factory is another company that managed to reduced its net debt during the year, by £35m. I would like to see debt coming down further. But I’m adding Card Factory to my list of potential penny share buys.
I already have a real estate investment trust (REIT) on my list of favourite penny shares. Today I’m adding another, NewRiver REIT (LSE: NRR). Now, I want to get the bad stuff out first. NRR’s latest full-year results were dreadful. The company reported a loss of £150.5m after tax. And a 13.6% like-for-like asset value decline contributed to a drop in portfolio valuation from £1.2bn to £974m. Still, some of that drop was down to disposals.
And things are starting to turn. Retail occupancy at the end of March nudged 96%, and rent collection is growing again. The liquidity situation looks fine to me too, with no refinancing needed until August 2023.
So, yes, commercial property is risky, even at the best of times. But I rate investment trusts as the best form of pooled investment, and a REIT as the way to benefit from any future upturn. I’m watching this sector closely.