2 penny stocks to buy now

The stock market falls mirror those of March 2020. Charles Archer believes these two penny stocks are value buys that will rise quickly when the market stabilises.

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As the stock markets around the world continue to lose value, now is an excellent opportunity to find value penny stocks with decent growth potential. Across Europe and North America, cases of Covid-19 are surging. This is partly due to the increased infectiousness of the Delta variant. The FTSE 100 index is at 6,890 while the NYSE composite index is at 16,052; the last time time the markets were falling like this was in March 2020. Savvy investors were able to buy shares cheaply, then made small fortunes when the stock market began to surge in April.

The difference now is that the Western world is in a far stronger position than we were last year. Every adult in the UK has been offered a vaccine, with two-thirds having received two doses. In the US and Europe, more than half of adults have had at least one dose. I think that markets will correct positively over the next few weeks. Now is the time to go bargain hunting.

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Freedom Day

Card Factory (LSE: CARD) is the first of my penny stocks to buy now. The greeting card seller should shortly benefit from an unlocked UK. It should start to generate profits on the value of its in-store offerings. Its share price hit a high of 95p in mid-May, and has fallen to 56p today as a result of refinancing its debt. It has also hired a new CEO and business development director this month. During the pandemic, it launched the Card Factory app, which, combined with online sales, brought in revenue of £27.6m. This was 135% higher than pre-pandemic online sales.

On the other hand, repeated lockdowns have been unkind to the retailer, hitting it during its most profitable events, including Christmas and Mother’s Day. In the year to 31 January, Card Factory posted a pre-tax loss of £15.2m, dropping from a £67.2m profit the year before. The stock is down roughly 66% over past two years, and it faces stiff competition from MoonPig. However, I think these negatives are likely to be offset by increased customer visits over the next few months.

Cannabis Stock

Sundial Growers (NASDAQ: SNDL) was briefly a favourite of the Reddit crowd earlier this year. The company pounced on the opportunity to erode its debt by issuing 1.3bn new shares. It now sits on substantial cash and assets of $723m as of 31 March. As a result of this good fortune, the company is pivoting away from actually growing cannabis plants. Instead it is starting to invest in the wider marijuana industry. It is doing this with SAF group, and together they have formed Sunstream Bancorp. This could prove to be a lucrative partnership over the next few years. Potentially, Sundial could be a target for a future buyout.

There are clear risks though; Sundial is being forced to scale back on its main product, and is based in Canada without a clear pathway into the US market. In addition, it is worth bearing in mind that it could have been delisted without the Reddit surge coming to the rescue. Nevertheless, on balance of risk versus reward, I think that this penny stock could form a small portion of my portfolio.

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Charles Archer has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory. 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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