2 penny stocks that could shape the future

Penny stocks are usually high-risk/high-reward investments. Here, John Town highlights two UK shares that he thinks could grow in the future.

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I’m usually quite cautious when it comes to penny stocks, as their volatile prices can be a headache. But after taking a couple of painkillers, I’m still on the lookout for those little hidden gems that could one day find their place in the limelight. 

Today, I want to talk about two lowly valued UK shares that are in the lithium business. Here’s why I think Kodal Minerals (LSE: KOD) and Savannah Resources (LSE: SAV) could be great investments for me.

2 penny stocks with high demand

Lithium has become a hugely sought after commodity in recent years. According to Statista, lithium’s market value is set to increase to $4.93bn by 2027. Consequently, companies have emerged from all over the world to seize on this rapidly developing market. 

I think that the size of the market will provide opportunities for smaller businesses to get their piece of the pie. So, although competition in this market is fierce, I still see Kodal and Savannah having a respectable chance to develop.

Kodal Minerals

Kodal Minerals is a UK mining and mineral development company that has a strong focus on the lithium industry.

What I find very exciting is that the Kodal share price has seen exponential growth in the past 12 months. This time last year, Kodal was trading at a price of just under 5p and as I’m writing, it’s trading at 40p. It could also rise in the near future with Kodal expected to have its mining licence accepted for its flagship project in Mali. The licence is currently in its final stage awaiting approval. 

Kodal’s cash balance reached a new high in its FY20 report at £870,000, whereas in its FY19 report, the company only recorded £315,000. On top of that, the company’s losses are narrowing every year. In 2020, Kodal reported a loss of £255,000, compared to £339,000 in 2019. I think these are very encouraging results for an emerging penny stock. 

Savannah Resources

Savannah Resources is a mineral development company and is listed on the FTSE-AIM. The company has ambitions to be the first major producer of lithium in Europe.

The Savanah share price has risen 73% in the last year which is not as impressive as Kodal’s increase, but is still quite an advancement. The lithium stock is operating on two major projects at the moment, one in Portugal and another in partnership with Rio Tinto, in Mozambique. 

Risks

I’ve identified two main concerns for these stocks. The first is in regard to the rise in hydrogen fuel cell technology. This development has the potential to alter the electric car production line in the future, making lithium based batteries obsolete in this sector. 

Secondly, there are multiple lithium mining companies and developers that have already established themselves in the market. It could become difficult for Savannah and Kodal to push their way in.

Should I invest? 

Penny stocks can be volatile investments and with the news surrounding the advancement of hydrogen fuel cell batteries I’m concerned for Kodal and Savannah.

However, I think I’ll take a speculative position with these two shares as I’m encouraged by the strong financial reports, the share price growth and overall potential. 

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 considered so you should consider taking independent financial advice.

John Town 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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