One penny stock I am considering for my holdings is Centamin (LSE:CEY). Here’s why.
Gold producer
Centamin is a gold mining company with a core focus in African territories. It has operations in Egypt, Cote d’Ivoire, and Burkina Faso but its main asset is its Sukari Gold Mine, in Egypt.
In times of economic uncertainty, when inflation is soaring, commodities prices can often rise. Rising levels of US inflation have seen commodities prices, such as gold, continue to rise in recent months.
A penny stock is a stock that trades for less than £1. Centamin shares have cooled and dropped into this category. They are currently trading for 90p. At this time last year, the shares were trading for 114p, which is a 21% drop over a 12-month period.
The bear case
A real issue Centamin shares could face is the reaction of central banks to curb inflation. If central banks continue to increase interest rates to ward off inflation and this results in a rise in the value of the US dollar, the value and demand for gold could fall. If the value of gold falls, Centamin’s performance and shares could be hit hard. If performance levels were to drop, any returns I hope to make could also be affected.
The other issue with investing in Centamin shares is that its Sukari Gold Mine is its only revenue-producing mine. There is a chance operations could come under pressure or a multitude of issues could occur, affecting production. In turn, this could affect performance and returns.
A penny stock I’d buy
Centamin shares have been on a downward trajectory in recent months and I consider now an excellent opportunity to buy the dip. The share price at current levels represents good value for money, in my opinion. The shares are currently on a price-to-earnings ratio of close to 13.
As well as value for money, Centamin shares also possess an enticing dividend yield of 6%. It is worth noting the FTSE 100 average dividend yield is 3%-4%. Centamin shares could help me boost my passive income stream. It is worth noting that dividends can be cancelled, however.
Centamin also has a good track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see revenue and profit increased year on year for three years between 2018 and 2020. 2021 levels dropped, due to the pandemic and its effects.
In addition to performance, Centamin has no debt on its books. I am buoyed by this as it means not only can it invest in future growth, but I would expect to see higher than average returns without the worry it needs to pay down or service debt.
Overall I believe Centamin shares are an excellent penny stock for me to buy and hold for the long term. I’d add the shares to my holdings.
