2 top penny stocks I’m buying this month!

Andrew Woods explains why he’s attracted to these two mining penny stocks with strong balance sheets.

| 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 often find that penny stocks are a great way to gain growth over a long period of time. These are generally defined as stocks with a share price of less than £1 and a relatively small market capitalisation. Let’s take a closer look at why I’m buying these two penny stocks in July.

Strong cash balance, little debt

Centamin (LSE:CEY) shares have been volatile to some degree over the past year. In that time, the share price has fallen 26% and is down 15% in the last three months. At the time of writing, the shares are trading at 79p.

The company – a gold mining firm operating in Africa, Egypt, and Australia – has enjoyed solid revenue growth between 2018 and 2021. This has risen from $603m to $733m.

Furthermore, pre-tax profits have increased from $178m to $224m over the same time period. 

The business also appears to be in a strong financial position. In March, the company had a cash balance of $207m. Its debt pile stands at just $634,000, meaning that the firm has the resources to handle debt, while potentially engaging in controlled expansion.  

Despite this, production for the first three months of 2022 was down 11%, year on year. Any pandemic resurgence could cause further production falls due to the possibility of staff shortages.

On the other hand, Centamin shares may be cheap. A glance at forward price-to-earnings (P/E) ratios shows that the business has a lower ratio than a major competitor, Barrick Gold.

This indicates that I would be getting a bargain if I added Centamin to my portfolio soon.

Consistent earnings growth

Secondly, penny stock Hochschild (LSE:HOC) could be a good addition to my portfolio. Over the past year, the share price is down 49% and the shares currently trade at 84p.

The company – a silver miner in South America – has recently been suffering as the underlying price of silver continues to fall. Despite this, pre-tax profit between 2020 and 2021 increased from $63m to $137m. Over the same period, revenue grew from $621m to $811m.

Hochschild had a cash balance of $387m in March, while debt stood at $304m. Furthermore, between 2017 and 2021, earnings per share (EPS) rose from ¢8 to ¢14. By my calculation, this means that Hochschild has a compound annual EPS growth rate of 11.8%. This is both strong and consistent.

It should be noted, however, that past performance is not necessarily indicative of future performance.

There does remain, however, the threat that any pandemic resurgence could cause a halt to mining operations if there are worker shortages.

Overall, both of these penny stocks could provide long-term growth despite the higher risk of investing in these types of companies. I will be adding both firms to my portfolio soon.   

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.

Andrew Woods 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

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »