Although penny stocks come with risks, some look more attractive than others to me.
Two picks I’m looking to buy and hold for as long as possible when I next have the investable cash are Metals Exploration (LSE: MET), and Michelmersh Brick Holdings (LSE: MBH).
Here’s why!
Metals Exploration
As the name alludes to, the business looks to identify and extract precious metals. Its operations are in the Philippines.
The business has seen its shares skyrocket in the past 12 months, up 160%. At this time last year, the shares were trading for just under 2p, and now trade for just under 5p.
It’s worth noting that small-cap stocks can fluctuate up and down rapidly. In some cases, their respective gain or loss can seem mammoth, compared to more established stocks.
From a bullish view, the business recently announced a new share purchase agreement. The agreement gives it control of the gold-rich Cordillera area of the Philippines. Mining is expected to begin in the second half of this year. Investor sentiment has continued to rise since the news broke in January. This additional revenue stream could boost the fledgling business.
Based on current financials, the shares look good value for money too, on a forward price-to-earnings ratio of just above two.
Moving to the bear case, my biggest concern is geopolitical instability in the region, which could harm operations and output. Plus, the huge pile of debt the firm is working hard to pay down. Both aspects are credible threats to performance, growth, and potential returns.
Overall, based on the current valuation, as well as recent developments, Metals shares look like an exciting opportunity to me.
Michelmersh Brick Holdings
Similar to Metals Exploration, Michelmersh’s name gives away the game. The firm manufactures brick, tile, and other building materials out of its own landfill site in Telford, UK.
The shares are up 6% over a 12-month period, from 93p at this time last year, to current levels of 99p.
Growth potential for the firm is what excites me the most. This is linked to a couple of factors. Firstly, the housing imbalance in the UK means many bricks, tiles, and building materials will be needed. This could be a long-term boost for the firm’s performance. Linked to this, infrastructure growth required for the growing population in the UK could also be a potential money spinner.
At present, a dividend yield of 4.5% is attractive. However, it’s worth noting that dividends are never guaranteed. Plus, the shares look decent value for money on a price-to-earnings ratio of just over nine.
The obvious risks involve continued macroeconomic turbulence. As the property market, linked to higher interest and mortgage rates, has struggled, demand for bricks has cooled. If this continues for some time, there could be performance issues, as well as returns being impacted.
Generally speaking, demand for bricks, and Michelmersh’s access to diverse end markets, make it a no-brainer for me. The passive income opportunity, as well as attractive valuation help my investment case.
