Sometimes people buy penny stocks hoping they will increase in price and provide a quick profit. I prefer to buy shares in businesses I think have great long-term potential. Here are two such companies whose shares trade for pennies not pounds. I’d consider buying both for my portfolio today and holding them for a decade.
Although the type of cars people drive may change in the future, I think demand for automobiles in general will stay high in coming years. That’s one reason I feel quite upbeat about the prospects for car dealers.
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One such dealer is Vertu Motors (LSE: VTU). It sells a wide range of car marques from over 150 outlets nationwide. It is the fifth largest car dealer in the UK and operates under brands such as Macklin Motors and Bristol Street Motors. The car dealership industry remains quite fragmented so I like Vertu’s strategy of integrating regionally strong firms into its company. Last month, for example, it announced the purchase of a couple of Toyota dealerships in the Midlands. I see that strategy as one that could add significant scale in the coming decade, boosting profitability.
Share price surge
The Vertu share price has more than tripled since the depths of pandemic uncertainty in April 2020. It is up 102% over the past year, at the time of writing this article yesterday.
But I don’t think it is too late to add the company to my portfolio. It has started paying dividends again, although that doesn’t mean it will necessarily do so in future. Last month, it raised its full-year profit forecasts.
One risk that the company itself has noted is supply constraints in the car industry. Staff absence due to medical isolation could lead to reduced operating hours at some dealerships too. Both factors could eat into revenues and profits.
Another nationwide chain with strong local brands is banking group Lloyds (LSE: LLOY). As well as the Lloyds brand, it operates under well-known names such as Halifax and Bank of Scotland.
Banking can be a very profitable business. For the first nine months of this year, the company reported statutory pre-tax profits of £5.9bn. I think demand for banking will be resilient over the next decade. Unlike high street neighbours such as shops, I actually think a boon in online custom could be good for banks. Many customers feel reassured banking online with a familiar, well-established bank like Lloyds rather than a digital start-up. So I think digital banking could help sustain revenues while possibly offering the chance to lower costs in coming years.
A large bank among the penny stocks
Lloyds trades among other penny stocks despite its strong business and what I see as a bright future. There are some clouds on the horizon, though. It is heavily exposed to the UK property market, so any crash in housing values could hurt its profitability.
I’m hopeful the bank will raise its dividend in 2022 as it has been stockpiling spare cash. But whether it does or not, I reckon there is strong long-term profit potential at the company. That’s why I’d be happy tucking it away in my portfolio for a decade.