Penny stocks can yield significant returns for investors. Unfortunately, they can also produce significant losses. Still, I think some of the best shares to buy now are via small companies.
With that in mind, here are three stocks trading for under a pound I’d buy today.
Penny stocks to buy
The first is the public transport operator Stagecoach (LSE: SGC). I’d buy this firm partly as a recovery play and partly as a way to invest in the green transition.
I think public transport will play an essential part in the government’s strategy to reduce carbon emissions. As such, while Stagecoach has suffered a rough 18 months, I’m optimistic for its future.
The company will also benefit from the £227m recently made available by the Department of Transport to help get the country moving again after the pandemic.
Nevertheless, despite my optimistic outlook, I should make it clear that this is a recovery play. As a result, it’s riskier than most penny stocks. Another coronavirus lockdown could set the business’s recovery back months or years, and investors may end up paying the price.
Best shares to buy now
Another high-risk, potentially high-reward opportunity is Enquest (LSE: ENQ). This oil producer’s been teetering on the edge for the past year.
But after recently raising £36m from investors, its balance sheet now looks stronger. The company could also benefit from the rising oil price, which should help its bottom line and cash generation.
Average group oil production for the year is expected to range 46,000-52,000 barrels of oil equivalent (boepd) per day. That suggests a slight increase in the second half of the year as production for the four months to the end of April was around 46,000 boepd.
I think Enquest is one of the best shares to buy now as it has the potential to ride the economic recovery via higher oil prices.
That said, this company may have more risk than most penny stocks. It has a lot of debt, and earnings are volatile, due to its exposure to the oil price. I’d buy the equity for my portfolio of penny stocks, but it might not be suitable for all investors.
All figures point to the fact that the UK high street is rebounding strongly from the pandemic. This is why I’d also buy Card Factory (LSE: CARD) for my portfolio of penny stocks.
The company came close to the edge last year. But following a £225m refinancing, most of its stores were able to reopen in April.
According to a trading update issued at the end of May, store sales were better than expected in the first few weeks following reopening, down only “marginally” compared to the same period in 2019.
I think this update supports my conclusion that this is one of the best shares to buy now, considering its recovery potential.
Despite that potential, it’s still a risky bet. After all, the group nearly collapsed last year, and that could happen again if there is another wave of coronavirus. I’d only buy the shares as part of a diversified portfolio of penny stocks considering this risk.
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Rupert Hargreaves 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.