Penny stocks have a place in my portfolio. I like the potential that many of them have and these two appear to have characteristics that mean they could grow a lot over the coming years.
A top penny stock
Totally (LSE: TLY) is a share I’m considering adding to my portfolio. The healthcare group should benefit from the NHS backlog as it provides insourcing, which is a system whereby hospitals subcontract medical services and procedures to Totally Healthcare, which uses hospital premises and equipment for delivering treatments.
It’s also involved in the delivery of urgent care, so it’s well established with the NHS and is an important partner. All the more so in the context of the backlog has built up even more under Covid. A total of 5.7 million people were waiting to start routine hospital treatment at the end of August — the highest figure since records began in August 2007.
An ageing population, ongoing pressures on hospitals (especially over waiting times) and increased spending on the NHS, all mean Totally has a number of factors in its favour in the short and long term to help boost growth.
Potential downsides
It’s not a no-brainer investment, though. It’s very reliant on the NHS for its income and therefore the share price will likely be very sensitive to political debates around any creeping privatisation of the NHS. However, the chief executive worked for the NHS for over 20 years, including being Chief Executive of three large Primary Care Trusts. The company therefore should be able to navigate these challenges.
Another option
Argentex (LSE: AGFX) is a provider of foreign exchange services. It seems well positioned for future growth. Just recently it announced revenue was up 33% six-month period ended 30 September 2021. Profit after tax was up 22% to £3.3m.
The CEO said: “We remain confident in our future and long-term strategy to deliver on our ambitious
growth plans, and we are well placed to capitalise on the significant opportunities that lie ahead.”
When looking at its valuation, there’s a lot I like. The forward P/E is 10. The price to earnings growth ratio (PEG) is 0.4. To my mind that could mean it fits the mould of a Jim Slater-style ‘Zulu’ growth stock. These are shares that have a low PEG and therefore could be undervalued, higher-growth shares. The group also pays a dividend, often seen as a sign that management is confident in the prospects of the business and that it’s making cash.
Argentex has a market cap of only £100m, so it has plenty of potential to grow much bigger. Historically revenue growth has been strong.
It’s keen to emphasise its business model is not built on currency speculation. It helps customers with foreign exchange. This should make it more stable than, for example, a spread-betting company. The risks it faces, I think, are primarily around maintaining client relationships, the competition it faces and, because large amounts of money are involved, cybersecurity threats.
Ultimately though Argentex is one of a select group of penny stocks I’m considering buying right now.
