2 penny shares I’d buy with £1k right now

These two penny shares have fantastic growth credentials over the next couple of years, says this Fool, who would buy both.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I am always on the lookout for penny shares to add to my portfolio. These smaller businesses can be great growth investments.

However, they can also come with more risk than larger blue-chip stocks. Unlike their larger peers, smaller companies may not have the checks and balances in place to detect and deal with significant challenges. 

As such, I am not willing to include any old penny shares in my portfolio. I am looking for corporations with substantial competitive advantages and robust balance sheets. 

Both of the companies outlined below exhibit these qualities. I would not hesitate to buy both for my portfolio with an investment of £1,000 today. 

Penny shares to buy for growth

As the UK economy begins to recover from the pandemic, labour shortages are becoming a significant issue for many companies. I think this is the perfect environment for the temporary staffing operation Staffline (LSE: STAF). 

This micro-cap stock has lost over £100m during the past four years. Still, analysts are expecting a profit in 2021 and for 2022. Based on current estimates, the stock is trading at a forward price-to-earnings (P/E) multiple of just 7.7. Management has also cleaned up the balance sheet in recent years. The group now has a net cash position. This gives the company lots of financial flexibility to capitalise on opportunities as they emerge. 

Unfortunately, this is a highly competitive market with razor-thin profit margins. Overcoming these issues will be some of the biggest challenges the company has to deal with going forward. 

Despite these headwinds, I would buy the outfit for my £1k portfolio of penny shares today. 

Consumer demand 

Premier Foods (LSE: PFD) is another company that has been working hard to rebuild itself over the past couple of years. The business made a series of strategic missteps before the financial crisis, and it has taken it more than a decade to return to growth.

With a strong balance sheet and reconfigured pension plans, the establishment is in a better position than it has been for over 10 years to capitalise on growth opportunities.

City analysts are expecting earnings to grow by a double-digit percentage in the 2022 financial year, and further growth is expected in 2023. A key area of development for the business is the international market, where management is investing significant sums to capture market share. 

This is a great opportunity, but it could also be a significant risk. If the company expands too far, too fast, it could be an expensive mistake. This is something I will be keeping an eye on over the next few years. 

Even after taking this risk into account, I would be happy to acquire Premier for my portfolio of penny shares with £500 today. In a portfolio alongside Staffline, I think the company will help me build exposure to two fast-growing sectors of the economy. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »