When I am looking for penny stocks to buy now, I like to focus on corporations with an upcoming catalyst. This can help increase the worth of a business and crystallise value. Sometimes if a catalyst is not present, undervalued small companies can only get cheaper. That is not a favourable outcome for investors.
The most significant catalyst for company growth right now is the economic recovery. That is why I have been searching for penny stocks that may benefit from the UK economic bounce back.
A couple of stocks on the market appear to me to offer tremendous value right now compared to their growth potential.
Growth penny stocks
The first organisation on my list is the automotive dealer Pendragon. I would acquire this company today as the UK car market is experiencing a surge in demand from consumers.
At the beginning of October, the group informed the market that thanks to this boost, it had exceeded its initial growth expectations in the first half, delivering an underlying profit before tax of £35.1m.
As the company builds on this performance in the second half, I think the stock could make a great addition to my portfolio. Some challenges it could face include higher costs and an economic downturn that may hurt consumer sentiment.
One sector of the economy that is already firing on all cylinders is the construction sector. With that in mind, I would acquire penny stocks Speedy Hire and Topps Tiles for my portfolio.
I have diversified my risk here by targeting companies that focus on different sectors of the construction market.
Speedy rents equipment to contractors and the trade, while Topps has been focusing on expanding its retail presence. Over the past couple of quarters, the company has noted an uptick in demand for tiles from homeowners refurbishing their properties.
As the UK economy continues to rebound, I do not think the construction sector will reverse course. That is why I would buy both of these penny stocks today.
That said, I am aware construction is usually the first sector to feel the pain in an economic downturn. So, if the recovery does start to stutter, these companies could see a downturn before the rest of the market.
Recovery plays
In the property sector, I would acquire Capital & Regional and Hammerson for my portfolio of recovery penny stocks. These companies were perhaps the worst hit by the slump in commercial property values during the pandemic. They are still suffering. Rent collections and property values remain below 2019 levels. As such, they may not be suitable for all investors.
Nevertheless, I would buy both of these companies for my portfolio as speculative recovery plays. As consumer confidence builds, retail sales have been increasing. This should help stimulate demand for commercial property as retailers start to expand again. Capital & Regional and Hammerson have the most to gain from a fast recovery.
