The rocky road the stock market has followed in recent months has meant some stocks have lost a lot of ground. If the share price falls below 100p, it technically can be called a penny stock. Although not all penny stocks are undervalued, there are some that I think can offer me growth potential from current levels.
Here are two that I’m thinking of buying right now.
A low-risk play
The first stock I like is Just Group (LSE:JUST). The FTSE 250 company has seen the share price fall by 24% over the last year. This puts the shares down at 82p, making it a penny stock.
Just Group is a UK-based financial services company focusing on the retirement market for individuals and corporates. It says it has an edge due to the quality of underwriting and the experienced medical team it has in-house.
The business model is similar to other financial services firms, which is the main reason I like the penny stock. It has strong capital generation, which filters down to high solvency and a low risk of running out of cash anytime soon. Just Group notes a forecasted 15% growth in operating profits per annum due to this capital generation.
Of course, the company isn’t perfect and the share price has taken a hit in the past year. One reason for this was the exposure it had to lifetime mortgages. It cut some of this last year and sold it to another company, taking a loss in the process. Another risk the business cited in the full-year results was the constant regulatory framework changes.
Overall, I think I’ll buy this penny stock as an alternative to some of the large FTSE 100 pension and asset managers.
A higher-risk penny stock
The second firm I think has growth potential is Tullow Oil (LSE:TLW). I’ve had mixed emotions over the years about the oil exploration company. In some respects, it has traded like a true penny stock with high volatility and erratic moves.
However, that’s the nature of the sector, given that it all comes down to whether sustainable oil projects can be found and commercialised. The share price is up 10% over the past year, but still trades well below 100p, closing Friday at 55.9p.
I think the outlook appears brighter now than it has for a while. It has 40 exploration and production licenses in 11 countries. In a recent update, it reiterated that it should be able to meet production guidance of 59,000-65,000 barrels a day.
This is in contrast to recent years, where habitual downgrades of expectations caused the share price to spiral ever lower.
Clearly, such penny stocks are still risky investments for me to consider. Yet it seems like this particular business is getting itself in order, with large potential in the Jubilee and TEN fields. However, if speculation on new projects fails to deliver, the share price could slump.
