What’s the secret to making money from penny stocks?
For me, the key is to not treat them like get-rich-quick punts. Doing that, I think, is why so many folk lose money.
I look at them like any other stock, and only buy if I think they’re great companies I’d want to hold for 10 years.
Capital & Regional
Capital & Regional (LSE: CAL) only just squeaks in to the penny stock classification, with a market-cap of £99m. But at least the 56p share price is well with limit of under a pound.
It’s a real estate investment company that mostly has its cash in shopping centres, retail parks, and the family entertainment venue Xscape.
Real estate is out of fashion now, so it’s not a surprise to see the share price fall over the past five years. But it does look oversold to me.
With inflation, interest rates, and UK borrowing at sky-high levels, there’s clearly risk ahead for stocks like this.
But I see it as a nice recovery candidate, and it’s on a forecast dividend yield of 9% right now. H1 results on 10 August might make a difference.
Topps Tiles
Topps Tiles (LSE: TPT) shares two of the same things. It’s also only just under the £100m limit, with a £98m market-cap.
And it’s another penny stock with a good dividend, on a forecast yield of 7.6%. Don’t let anyone tell you we have to buy FTSE 100 mega-caps to get dividend income.
The share price has been up and down a bit, and has lost about 15% in five years. But the valuation looks good to me.
Forecasts show a price-to-earnings (P/E) ratio of 19 for this year, which I’d say seems a bit high. But a couple of years of forecast earnings growth would drop that to just a bit over eight by 2025. And that sounds a lot better to me.
The firm does tiles and flooring, so it must share some property sector risks. But I like the look of it.
Renold
My final pick, Renold (LSE: RNO), doesn’t pay a dividend, but it is on a very low forecast P/E of just 5.5.
The share price is down a few percent in five years. But since a low in 2020, it’s more than trebled.
Renold makes machine parts, like chains and gears that go into making conveyors. It sells to all sorts of sectors, including construction and mining, around the globe.
So it faces commodities and infrastructure risk, while things look a bit tight for those industries. But at least there’s diversity there.
I like the ‘picks and shovels’ nature of Renold. And it’s quite literal here too, as it makes things for digging.
Net net debt of £30m might be a bit of a concern for a firm with a market-cap of £67m. I’ll keep an eye on that.
But all three of these are on my list of buy candidates for next time I have cash to invest.
