I am always looking for penny stocks to add to my portfolio. While investing in these companies can be incredibly risky, there are also some fantastic opportunities in the small-cap sector.
However, due to the risk of investing in these smaller businesses, I am only willing to allocate a slim percentage of my portfolio to penny stocks. As such, only a few make it through the strict criteria I use to analyse opportunities.
Here are two penny stocks I would buy right now for my portfolio.
Penny stocks to buy for growth
The first is the commercial property company Hammerson (LSE: HMSO). This business has come close to collapse in recent years, but it has managed to keep the lights on with emergency fundraisings and asset sales. Now, as commercial property prices start to rise from pandemic levels, it looks as if the outlook for the enterprise is improving.
In a trading update issue towards the end of January, the organisation announced that adjusted earnings for its 2021 financial year would range £75m-£80m, ahead of the £60m it previously expected. It collected around 88% of rents due for the period.
The firm has also gathered 74% of rent due in the first quarter of its 2022 financial year.
Clearly, the business is not out of the woods yet. It is still struggling to collect rents from tenants and will likely continue to do so as the brick-and-mortar retail sector remains under pressure. It is unclear how long this challenge will last for the business and is probably the most considerable risk hanging over the stock right now.
Still, with the outlook for the enterprise improving, I would be happy to add the shares to my portfolio of penny stocks. On top of its improving outlook, the shares also look dirt-cheap. They are trading at a price-to-book (P/B) value of 0.6. This suggests to me the market could be overlooking the potential here.
Profit potential
Another opportunity where it looks to me as if the market is overlooking the potential of the business is at oil producer EnQuest (LSE: ENQ).
Even though the price of Brent Crude recently hit a multi-year high of $90 per barrel, the stock is still trading at roughly the same level it was before the pandemic began. And it is not as if the business is not benefiting from the higher oil price. Analysts believe the firm will earn $156m this year and $312m in 2022. Based on these numbers, the stock is trading at a 2022 forward price-to-earnings (P/E) ratio of 1.5.
These numbers assume the price of oil remains high. If it does not, the company may miss these earnings expectations. This is probably the most considerable risk to my investment thesis at this point.
Nevertheless, even after factoring this risk into consideration, I think EnQuest is one of the cheapest penny stocks on the market at the moment. In my opinion, even a modest improvement in investor sentiment could lead to a significant increase in the company’s share price.
Therefore, I would be happy to add the stock to my portfolio today.
