Penny shares can be a great option to add to my portfolio. Although I’d never hold all my money in just a few small-cap stocks, owning some allows me to diversify my holdings. It also gives me the potential to achieve some high returns that a large-cap stock would struggle to offer, given the size.
With the new Stocks and Shares ISA year starting next week, here are some early contenders for me to think about including.
Record revenue on the books
Topps Tiles (LSE:TPT) is a well-known tile retailer in the UK. With a market-cap of £91m and a share price of 47p, it ticks the boxes for a penny stock. Over the past year, the share price has fallen by 15%.
The business has dealt with some problems in the past 12 months. This included a rather public spat with a large shareholder, MS Galleon. Topps Tiles urged others to vote against the plan to oust the current chairman, and said MS Galleon had a conflict of interest in potentially launching a rival tile brand.
High inflation has also caused a headwind for the company, but the 2022 annual report showed how cost savings and store reductions have compensated to keep costs under control.
In fact, last year was the second consecutive record year for revenue at the business. Adjusted profit before tax increased by 4% from last year, to hit £15.6m. If it has another record year in 2023, I feel it’s only a matter of time before people start noticing and buying the stock, pushing it much higher.
Further, I think it has all the hallmarks of being a good defensive stock. This could come in handy if the UK economy sours later this year.
Investing in Britain
Northern Venture Trust (LSE:NVT) is a very interesting stock that has caught my eye. The trust invests primarily in privately-owned UK manufacturing, service and technology businesses.
It focuses on filtering for companies based on growth potential, strong management and cash generation.
At present, the trust has a market-cap of £95m and a share price of 56p. The stock has fallen in value by 11.5% over the past year. In the annual report, this drop was mostly attributed to the lower value of the tech stocks being held in the trust.
I do acknowledge that this is a high-risk penny stock. This small-capper invests in other small-cap stocks! However, I feel the UK economy is going to be in a recovery phase over the next year, followed by a growth cycle. To this end, buying now does make sense to try and make large gains in coming years.
Aside from pure capital gains, I do benefit from the generous dividend yield. Currently, this sits at 6.96%.
I’m considering adding both stocks to my ISA when I have some free cash. However, I’ll be only investing a small amount, given the risk involved.
