Penny stocks can be an excellent choice for investors to supercharge their portfolios. These are often small, young companies with enormous growth prospects and room for significant share price gains.
I wouldn’t call any small-cap stock a ‘no brainer’ due to the higher risks involved. Their share prices can be volatile, and they can be less financially equipped to deal with company, sector, or economic crises.
Yet I think the standout growth potential of these penny shares still makes them impossible to ignore: Logistics Development Group (LSE:LDG), Alternative Income REIT (LSE:AIRE), and Ultimate Products (LSE:ULTP).
Want to know why? Read on.
Cheap as chips
As I say, purchasing penny stocks comes with an added layer of danger. However, investors can protect themselves by purchasing ones that are going cheap.
The reason is simple: shares with rock-bottom valuations enjoy a cushion that can limit (or even prevent) price drops.
This is the case with Logistics Development Group, and indeed with all of the shares here. This particular UK share trades on a forward price-to-earnings (P/E) ratio of just 3.1 times.
The company formerly known as Eddie Stobart primarily invests in — you guessed it — logistics assets. We’re talking about medicines distributors (Alliance Pharma), delivery companies (APC), and e-commerce specialists (SQLI). It also holds a large stake in Finsbury Food, a large bakery business.
Logistics Development’s cyclical nature leaves it exposed to downturns, though its diversification across sectors helps reduce this risk. In my view, themes like the rise of online shopping and a rapidly ageing population give the company excellent growth potential.
Growth and dividends
Penny shares aren’t renowned for their ability to pay dividends. Any surplus cash these businesses have tends to be reinvested for growth rather than distributed to shareholders.
Alternative Income REIT is an anomaly in this regard. Under real estate investment trust (REIT) rules, it must pay 90% of annual rental profits in dividends.
This means it currently has an 8.7% prospective dividend yield. Combined with a forward P/E ratio of 7.9 times, it offers excellent all-round value.
Alternative Income invests in a range of property classes, including retail outlets, hospitals, power stations, and apartments. While it’s exposed to interest rate risk, this diversified approach provides a stable long-term return and reduces volatility during tough economic periods.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
A top turnaround stock?
Ultimate Products is the final cheap share we’re looking at here. It trades on a forward P/E ratio of 8.9 times.
What makes this such an attractive growth share? To be honest, things have been pretty dire here of late as consumer spending has fallen. The company makes household products under brands like Salter and Russell Hobbs.
Yet I think it could be a great recovery stock to consider at today’s prices. Its much-loved brands put it in good shape to ride the economic upturn when it arrives. European expansion and work to improve its sales functions could also boost growth.
A final bonus: this penny stock offers a 10.1% forward dividend yield.
