Penny stocks are companies with a share price under 100p and (usually) a market capitalisation under £100m. I’ve been hunting through these small companies looking for growth stocks to buy for my Stocks and Shares ISA in 2022.
Here are three I’ve found that I’d buy for my portfolio today.
My first pick is currency exchange specialist Argentex (LSE: AGFX). This £100m business is one of a handful of companies that’s disrupting the currency services offered by banks by providing cheaper and faster services.
Argentex doesn’t serve the holiday travel market. Instead, the firm targets higher-value customers with more sophisticated requirements, such as institutions, companies, and high net worth individuals.
This is still quite a small business, but growth has been strong so far. Revenue rose by 33% to £15.7m during the six months to 30 September, while pre-tax profit jumped 22% to £3.3m. The main risk I can see is that this is an increasingly competitive market. Argentex’s profit margins have fallen over the last 18 months, cancelling out some of its growth.
However, I think the risk of slowing growth is already priced into the stock. Argentex shares are trading on just 12 times 2022 forecast earnings and offer a 2.5% yield. This is a growth stock I’d be happy to buy for 2022.
This turnaround is delivering results
My next pick is industrial chain specialist Renold (LSE: RNO). Unlike Argentex, this British firm is more than 100 years old. Renold makes chains and related parts used for machinery such as cement mixers, conveyor belts, escalators, and train doors. It’s one of the oldest companies in this market. Renold’s products sell all over the world.
This business has been through a difficult patch over the last few years, but now seems to be back on track. The company’s adjusted earnings are expected to rise by a chunky 79% this year, as the turnaround kicks in.
If Renold delivers on this forecast, I think the stock looks quite cheap on just nine times forecast earnings. My only serious concern is that this business still has a sizeable £100m pension deficit. This requires cash contributions of around £5.5m each year.
I’d want to keep an eye on the pension situation. But Renold is certainly a penny stock I’d be happy to own.
Too cheap to ignore?
The last share I’m going to look at is currently priced at just four times 2022 forecast earnings. The shares are also expected to provide a chunky 6.7% dividend yield in 2022.
The company concerned is Smiths News (LSE: SNWS), which delivers newspapers and magazines to shops all over the UK. The company has a 55% share of the market and has been in business over 200 years.
I’m sure you’ve spotted the obvious risk here — sales of printed newspapers and magazines have been falling for years as readers move online. My guess is that this trend will continue.
This decline is an ongoing challenge for Smiths, but the company’s big market share means that it still handles enough volume to make money. Cash generation is good, and Smiths’ debt levels have been falling fast.
I think this penny stock is probably too cheap at current levels. For this reason, I’d be happy to add Smiths News to my portfolio today.