I am always looking for penny stocks to buy for my portfolio. These companies can be riskier investments than blue-chip stocks. However, they can also generate fatter profits. That is why I like to own several as part of a diversified portfolio.
With that in mind, here are my favourite penny stocks, which I would not hesitate to buy today.
Recovery penny stocks
Restaurant Group, Marston’s and The Fulham Shore are all hospitality businesses, but they all have very different outlooks.
Fulham Shore was able to capitalise on the high demand for takeaway pizzas during the pandemic. Group sales remained relatively robust throughout the crisis. That put the business in a solid position to return to growth when the government lifted restrictions.
Restaurant Group, which owns the Wagamama brand, benefitted from similar trends during the pandemic. Management has been able to capitalise on rising consumer spending as the country’s economy has opened up.
Marston’s wasn’t able to switch to takeaways in the same way as Fulham Shore and Restaurant, but sales have rebounded rapidly as the economy has reopened. According to the group’s latest trading update, like-for-like sales since restrictions were lifted in July have totalled 102% of 2019 levels.
As consumer confidence continues to recover, I think these penny stocks should continue to benefit from the tailwinds that have helped drive growth over the past six-to-12 months.
Some headwinds that could hold back this recovery include rising wages and the supply chain crisis. These challenges could push costs up for hospitality firms and hurt profitability.
As well as the hospitality sector, I also want some exposure to the retail sector. The three penny stocks I think are well-positioned to capitalise on the country’s retail recovery are Topps Tiles, Capital & Regional and Card Factory.
I have picked these businesses because they offer exposure to three different parts of the retail sector. Capital & Regional owns a portfolio of commercial properties around the UK. These assets suffered a fall in values during the pandemic, but now the economy is reopening, initial indications suggest valuations could be stabilising.
Meanwhile, Topps Tiles offers a way for me to build exposure to the booming home improvement and construction markets. These have also been able to escape some of the lockdown restrictions that have been in place during the past two years.
Finally, Card Factory offers exposure to the gifting market, which has rebounded as friends and family reunions have returned.
These companies are benefitting from different tailwinds, but they face the same challenges. These include rising wage costs and the supply chain crisis. These issues could have a negative impact on profit margins at a tough time for the companies.
This is the biggest growth headwind facing these operations today.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory and 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.