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3 of the best penny stocks to buy in August

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British Pennies on a Pound Note
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I’ve been looking for penny stocks to buy for my share portfolio. By targeting smaller companies, I’m hoping to find under-the-radar businesses that are too small for big City fund managers — but big enough for me.

Each of the three companies I’m looking at today operates in a specialised area where it’s a respected player. In my view, all three look cheap at current levels.

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Flying could take off

Small-cap Air Partner (LSE: AIR) organises charter flights, private jet services and specialised aviation safety and security services. Last year’s results were hit by Covid-19 but were still better than expected, thanks to strong demand for private jet flights and cargo charters.

Demand for extra freight capacity is falling as more regular passenger aircraft return to the sky. But Air Partner said earlier in July that private jet demand is still very strong, especially in the US. The company says that bookings through its JetCard pre-paid scheme have risen by 57% over the last year, with a 153% increase in the US.

The main risk I can see here is that the path back to normality is not clear. Some of Air Partners’ operations remain affected by the pandemic. And we don’t know if private jet demand will remain high.

Even so, I’m tempted to buy this penny stock at current levels. The company is trading on around 14 times forecast earnings, with a 2.8% dividend yield. If profits return to the levels seen from 2016-2019, then I’d expect the shares to perform well.

A value opportunity

Smiths News (LSE: SNWS) is one of the UK’s two main distributors of newspapers and magazines.

Obviously, this is a business that’s in decline. People don’t buy as many newspapers as they used to. But Smiths News still has good scale and is surprisingly profitable. The company still handles more than £1bn of sales each year, from which it generates a reliable stream of cash.

What attracts me to Smiths is its transport network, which is geared to provide rapid daily distribution across the UK. In my view, the opportunity for this business — or for a trade buyer — is to find new uses for this well-established network.

There’s no certainty this will happen. But Smiths News shares currently trade on a price-to-earnings ratio of five and are expected to offer a 4% dividend yield this year. I’d buy this as a value stock.

A penny stock I bought earlier

My final pick is a share I already own. Vertu Motors (LSE: VTU) is one of the UK’s largest car dealership groups, trading under brands including Bristol Street Motors.

The company has warned that new car sales this year are likely to be hit by supply restrictions on new cars caused by the global chip shortage. However, slower delivery of new cars has led to “exceptional” demand in the used car market. As a result, management recently upgraded their profit guidance for the full year.

We don’t yet know how the UK economy or the Vertu’s business will perform over the next six months. But broker forecasts already include a substantial fall in profits from pre-pandemic levels.

Vertu shares currently trade on less than seven times forecast earnings and offer a 3.7% dividend yield. I think this penny stock is too cheap, so I recently added it to my portfolio.

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Roland Head owns shares of Vertu Motors. The Motley Fool UK has recommended Vertu Motors. 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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