Penny shares can sometimes be obscure firms with vague business prospects in distant lands. Sometimes, though, they are familiar companies whose businesses are a daily presence on high streets across Britain. Here are two such penny shares I hold in my portfolio. I think now could be a good time to top up my position in both.
Crunch time for Stagecoach?
It hasn’t been an easy time to run transport networks over the past 18 months. Plummeting passenger demand, staff shortages, and unpredictable receipts have bedevilled bus and train operators alike.
That helps explain why bus company Stagecoach (LSE: SGC) revealed that it was in exploratory talks to be taken over by rival National Express. In the couple of months since the initial announcement, the companies have asked for more time to extend their talks. The deadline has now been pushed back to mid-December.
Does this mean that the deal is more or less likely? It’s hard to know. But according to the companies, “reciprocal due diligence is now at an advanced stage”. So it seems like the reason for the deadline extension is because the companies are seriously considering the attractiveness of a takeover. That doesn’t mean anything will come of the bid. But, whether it does or not, like National Express I see value in Stagecoach right now. The company has a strong position in the UK bus market. It faces limited competition in many areas, which is good for its profit margins. It has a lot of experience, which I think helps it run a cost-efficient operation.
If a bid materialises, there is the potential for it to be pitched at a higher level than today’s share price. But even if it doesn’t, I like the long-term potential of the Stagecoach business. I would consider adding more of these penny shares to my holdings. One risk, though, is that National Express makes an offer below the current share price, which could lead to a sharp fall.
Lloyds and a booming housing market
Continued demand for housing could be good news for new loan generation at Lloyds (LSE: LLOY), already the country’s largest mortgage lender. But even if the hot housing market cools, I think the bank could keep performing strongly. Its existing mortgage book could continue to drive large profits, although there is the risk that if default rates rise it could hurt earnings.
With its large footprint and market capitalisation, one might not expect to find Lloyds among the ranks of penny shares. It does trade in pennies, but has been getting pricier. Over the past year, the Lloyds share price has increased 26%, at the time of writing this article on Friday. Given that rise, why would I consider adding them to my portfolio? It’s because I think the Lloyds share price could still have room to run. Strong business, the potential for a larger dividend, and economic resilience could all boost investor sentiment.
My next move on these two penny shares
Like Lloyds, Stagecoach has seen its shares move up over the past year – by 15%, at the time of writing.
But both Stagecoach and Lloyds have seen their share prices slide down in recent weeks. I think that presents an opportunity to consider topping up my position in these well-known companies.
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Christopher Ruane owns shares in Lloyds Banking Group and Stagecoach. The Motley Fool UK has recommended Lloyds Banking Group. 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.