The best penny shares to buy in August

As the UK economy continues to reopen, these could be some of the best penny shares to buy in August argues Rupert Hargreaves.

| 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.

Stacks of coins

Image source: Getty Images

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.

I think buying a basket of penny shares, primarily companies with a UK focus, could be an excellent strategy to profit from the country’s economic recovery over the next few years. 

This is a strategy I plan to follow, but it might not be suitable for all investors. Penny shares can be incredibly volatile, and these smaller businesses lack the checks and balances in place at larger companies. Therefore, the risks of investing are significantly higher. 

Still, I am comfortable with the risks involved. That is why I have been considering buying the small-cap stocks highlighted below for my portfolio in August. 

Penny shares on offer

The first company is pub operator Marston’s (LSE: MARS). This enterprise has been on my radar for some time because I think the business is a well-managed operation that has always appeared to be undervalued by the market. 

And I think now could be the perfect time to buy the stock as it benefits from the reopening. According to City analysts’ projections, which are based on the company’s own forecasts, losses are projected to decline from £360m in 2020 to £65m this year. Marston’s could be profitable in 2022, analysts suggest, with income of £57m pencilled in for the year. 

Based on these projections, analysts believe the stock is trading at a forward P/E of 10.2. I think this looks attractive considering the company’s growth potential. 

That said, the business does carry a lot of debt, which could hold back its recovery if interest rates rise substantially in the years ahead. 

Debt reduction 

I would also buy Revolution Bars Group (LSE: RBG) for my portfolio of penny shares for the same reasons. As the economy reopens, I think the bar operator will see a substantial recovery in sales and earnings.

The company is projecting an earnings before interest, tax, depreciation and amortisation loss before lease adjustments of £12.5m this year. If the reopening continues as planned, analysts think the group will break even in 2022 and return to growth in 2023. 

Revolution has also taken advantage of the current market environment to raise money from investors. This has enabled it to substantially reduce borrowings to just £5m. A stronger balance sheet should help support the group’s recovery.

But while I am optimistic about the company’s prospects, I am wary that it was struggling to earn a profit even before the pandemic. This implies Revolution may struggle to return to profit even after the crisis has receded. 

Outperforming

I would also buy City Pub (LSE: CPC) for my portfolio of penny shares. While not technically a penny stock, its market capitalisation of just £123m gives it similar qualities. 

This premium pubs operator, which owns locations across the country, primarily in cities, is forecast to lose money for the next two years.

However, with the group’s latest trading update reporting that sales since reopening are running at 90% of 2019 levels, I think there is a chance the stock could outperform expectations. 

One challenge this company could face is the home working revolution. If workers are allowed to work from home forever, city centre activity may never return to pre-crisis levels. This would hurt City Pub’s growth prospects.

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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

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

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »