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2 penny stocks I’d buy with £3k

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One English pound placed on a graph to represent an economic down turn
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Penny stocks can be risky investments. They can also be incredibly profitable investments. The challenge is to find companies that can produce good returns with low levels of risk. 

These businesses aren’t easy to find. As such, penny stocks aren’t suitable for all investors. However, I’m comfortable with the level of risk involved. That’s why I’d buy the two shares outlined below with an investment of £3,000 today. 

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Penny stocks to buy

The first enterprise on my list is photobooth-to-laundry facility operator Photo-me International (LSE: PHTM). This company invests in photo booths and washing machines around the world, which are run automatically. It owns the kind of photo booths usually spotted in supermarkets, railway stations and amusement arcades. 

This business model has been incredibly profitable. Because the level of maintenance spending required once these machines are in place is relatively low, Photo-me has some of the most attractive profit margins and sustainable cash flows of all penny stocks. 

Unfortunately, during the past two years, the company has struggled. But after a restructuring, growth is expected to return in 2021 and 2022.

Of course, the big risk is that the company continues to struggle. If it does, it may continue to report losses, which would almost certainly negatively impact the share price. 

Still, based on current City projections, the stock is trading at a 2022 price-to-earnings (P/E) multiple of 7.5. It could also offer a dividend yield of nearly 12% next year, according to projections. 

Of course, these are just estimates at this stage, but I think they show the company’s potential. That’s why I’d buy Photo-me for my portfolio of penny stocks today. 

Economic recovery

The second penny stock I’d buy is Staffline (LSE: STAF). I should make it clear that this investment is certainly not for the faint-hearted. The temporary and permanent staffing solutions provider has both low-profit margins and is highly susceptible to economic trends.

What’s more, during the past few years, losses have ballooned due to a series of historical errors. In the past three years, the company has lost a sum total of £113m. Its current market capitalisation is only £100m. 

These numbers clearly illustrate the risks of investing in this enterprise. However, it looks as if the business is starting to turn things around.

After raising nearly £50m from shareholders last year, it has firmed up its balance sheet. Further, its management is confident that the economic recovery will lead to higher demand for staffing solutions, which presents a “number of growth opportunities for Staffline.

While I’m weary of the clear risks involved here, I think this company is one of the best penny stocks to buy, considering its exposure to the economic recovery. That’s why I’d acquire Staffline for my portfolio today. 

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Rupert Hargreaves 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.

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