As the UK stock market continues to tumble on the back of more interest rate hikes, penny stocks continue to get the stick. These mostly tiny businesses are often first in line to struggle and potentially even go insolvent during an economic turmoil.
So it’s hardly surprising that many such stocks have been sold off in recent months.
While penny stocks are notorious for their elevated risk, this comes paired with the potential for enormous returns. And despite what some share price movements would suggest, not all firms in this stock market segment are destined to collapse.
In fact, I’ve found two penny stocks that are currently chugging along nicely. So much so that it potentially makes them the best investments for my portfolio in October and beyond.
One of the best penny stocks to buy now?
It’s been a rough year for the Water Intelligence (LSE:WATR) share price. As a reminder, the company is a provider of non-invasive leak detection and repair services to the residential and commercial sectors.
With investor sentiment dropping off a cliff, this penny stock has tumbled by 50% in the last year. Yet this volatility doesn’t appear to be backed by rational thinking. At least, that’s the impression I’m getting when looking at the latest results because revenue and profits continue to grow by 44% and 10% respectively.
Regardless of what the economy is doing, a burst pipe needs to be fixed, pronto. And demand is already ramping up as we approach the winter season. Furthermore, with profits and cash flow firmly in the black, its dependence on external financing seems minimal. Even more so when looking at the $21.9m (£19.4m) pile of cash on its balance sheet.
Obviously, this isn’t a risk-free investment. Its small size does create challenges when competing against its more established rivals. And its international presence opens the door to currently unfavourable foreign currency exchange rates. Yet, given its solid track record, even in the current market climate, these are risks I’m willing to take for my portfolio.
Pick #2
Another penny stock that’s lost a lot of momentum this year is Solid State (LSE:SOLI). This is an electronics component designer and manufacturer serving the commercial, industrial, and military sectors.
Over the last 12 months, the share price has actually climbed by around 9%. Yet since the start of 2022, it’s been on a downward trajectory, falling by over 20%. What happened?
Like many of its peers, the group has been struggling with supply chain disruptions, especially when it comes to semiconductors. With customer order fulfilment slowing, it seems investors are jumping ship on fears that clients will switch to a larger competitor that can deliver faster.
While this is a valid concern, it’s worth pointing out that the order book continues to grow, even from customers who know there will be a delay. In fact, in its 2022 fiscal year ending in March, the order book grew by 75.9%. And even with fulfilment delays, the revenue stream continues to grow 28.2%, with dividends following at 21.9% growth.
From what I can tell, the primary issues surrounding this business are all short-term hurdles. And with the long-term picture still intact, combined with a double-digit discount, I can’t help but feel a buying opportunity has emerged for my portfolio.
