3 penny stocks to buy

Rupert Hargreaves takes a look at three penny stocks in the hospitality sector, all experiencing a rapid rebound in sales.

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British Pennies on a Pound Note

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I’m looking to buy a basket of penny stocks for my investment portfolio. I plan to focus on the hospitality sector because I think there are some fantastic opportunities in this part of the market.

That said, I’m aware this sector faces some significant challenges. As such, the companies below might not be suitable for all investors. 

Still, I’m comfortable with the risks involved. That’s why I’d buy all three. 

Penny stocks for my portfolio

I think the first company on my list is a must-buy hospitality business. The Fulham Shore (LSE: FUL) has defied the gloom in its sector over the past 12 months.

At the beginning of the pandemic, management swiftly switched the business to a takeaway model. This helped it navigate the uncertainty and primed the group for growth when the economy reopened.

According to its latest trading update, between 17 August and 5 September, sales across all group restaurants increased 27% compared to 2019 levels

This growth is fuelling the group’s expansion plans. Since March, it’s already opened two new restaurants, has a further two in development, and 15 in the pipeline. This growth potential is the main reason why I’d buy Fulham Shore for my portfolio of penny stocks today. 

Some risks the firm may face as we advance include higher labour and food costs and the possibility of further lockdowns. These could weigh on profit margins, and high prices could put consumers off. 

Eating and drinking

The other two hospitality stocks I’d buy for my portfolio of penny stocks are Marston’s (LSE: MARS) and Revolution Bars (LSE: RBG)

Like Fulham Shore, both have reported a strong rebound in trading since the economy reopened.

However, unlike their peer, neither of these companies were able to rely on a takeaway service to keep the lights on throughout the repeated lockdowns of the past 18 months. 

As a result, neither are in the same advantageous position as Fulham, but they’re still making a comeback. 

In its latest trading update, Revolution reported that trading has improved to 86% of 2019 levels. Despite this growth, the company still expects to report a loss in its current financial year. Meanwhile, sales between 12 April and 24 July across Marston’s estate totalled 90% of 2019 levels. 

Clearly, both of these companies have their work cut out to return to growth. They also face an uphill struggle to reduce the debt they’ve accrued throughout the pandemic.

However, I think both companies have the potential to return to growth in the near future. That’s why I’d buy both for my portfolio of penny stocks. 

Both firms also face similar risks to Fulham. Rising wages and food costs could eat into profit margins, and another coronavirus wave could dent consumer confidence, which may lead to a significant sales slowdown.

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.

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.

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