3 of the best penny stocks to buy now

Market minnows have the potential to generate big returns. Paul Summers selects what he considers to be three of the best penny stocks for him to buy now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK shares purchased for less than a pound a pop can sometimes generate fantastic returns. However, due to their greater volatility, it’s more important than ever to be selective about what I choose to invest in.

With this in mind, here are what I believe to be three of the best penny stocks to buy now.

Growth-focused penny stock

Trading at just under a pound, as I type, is Record (LSE: REC). This is a business that tries to reduce the impact of currency movements on institutional clients’ investment portfolios. 

Unfortunately, Record’s recent move to invest for growth has been at the expense of a “short-term decrease in profitability.” However, the firm is still cash-generative and boasts a healthy balance sheet. The payment of a special dividend smacks of confidence too. 

Speaking of which, Record started its new financial year in April with its highest recorded Assets Under Management Equivalents (AUME). It’s also been developing new products, including the recently-launched Emerging Market Sustainable Finance Fund.

Aside from this, Record also scores well on the quality metrics, such as returns on capital and margins. These are high, relative to the market in general, and go some way to making up for industry risks, such as regulatory hurdles. Nevertheless, the latter still has the potential to knock the share price.

On a P/E of a little less than 20 for FY22, I think Record could be a good stock for me to buy now. 

Recovering well

Also featuring in my selection of the best penny stocks to buy now is retailer Topps Tiles (LSE: TPT). Unsurprisingly, this is a company that really suffered at the hands of the pandemic. However, the tide has clearly turned.

Last month’s update said the company’s retail business had “performed well” in Q3, helped by the reopening of stores in April. Topps went on to say it expected to benefit from “high levels of consumer demand” going forward as the home improvement boom continues. A return to sales growth at its Commercial business is also expected.

Of course, hindsight shows that March 2020 was the time to pile in. The shares have multi-bagged since then. However, a P/E of under 15 now still doesn’t feel unreasonable for a debt-free company with an encouraging outlook. That said, its cyclical nature coupled with warnings that Covid-19 could get worse before it gets better makes this a cautious rather than automatic buy.

Ahead of expectations

A final pick is EKF Diagnostics (LSE: EKF). For under a pound a share, I can buy inmto a company that achieved record sales and profits in 2020.

According to May’s AGM statement, this form has carried on into 2021, thanks to “a very meaningful recovery in trading.” EKF’s core business “performed more strongly than expected” in Q1, again thanks to ongoing demand for sample collection devices generated by the pandemic. Indeed, the company now believes that full-year numbers are likely to be “comfortably ahead of already upgraded management expectations.” 

Naturally, all this hasn’t gone unnoticed by the market. In the last year, EKF’s stock jumped by 72% in value and now trades on a forecast P/E of 28. Unfortunately, this high valuation could mean the share price falls heavily if the company disappoints.

With a solid growth strategy and balance sheet, however, I’d still buy EKF today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers 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.

More on Investing Articles

Investing Articles

Could Premier African Minerals be a millionaire-maker penny stock?

Shares of Premier African Minerals (LSE:PREM) have crashed over the past year. Is this a golden opportunity for me to…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Which FTSE defence stock should I buy? Here’s what the charts say

FTSE shares like BAE Systems have been flying higher over the last couple of years as the geopolitical situation has…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s why investors should consider buying Scottish Mortgage shares today

After a steady rise in recent times, this Fool thinks Scottish Mortgage shares could be worth considering. Here he explains…

Read more »

Young black man looking at phone while on the London Overground
Growth Shares

This FTSE 250 stock keeps blowing broker forecasts out of the water

Jon Smith considers the ever-increasing share price targets for a FTSE 250 stock that has risen by 120% in the…

Read more »

A mixed ethnicity couple shopping for food in a supermarket
Investing Articles

Marks and Spencer shares could rise 29%, according to this broker

Marks and Spencer shares currently sport a P/E ratio of just 10, and one well-known City broker believes the company…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 of the best FTSE 100 beginner stocks to consider buying

The Footsie offers people just beginning their investment journey some of the best stocks to buy. Here are two to…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s why the Aviva share price suddenly dived

The Aviva share price suddenly dropped by over 6% the other day. But there's a simple explanation for this sudden…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

With no savings, I’d listen to Warren Buffett to aim for long-term wealth

Warren Buffett looks for "1-foot bars" to step over, not "7-foot bars" to jump. Stephen Wright looks at what this…

Read more »