The deadline by which Stocks and Shares ISA investors can max out their allowances for 2020/21 is fast approaching. It’s why I’m looking for some of the best penny stocks to buy for my own shares portfolio today.
As we here at The Motley Fool have explained: “If an equity’s share price sits under £1, it can be deemed a penny share”. And like any UK share, these companies can enjoy significant price gains over the long term. However, their cheapness also means that they can be prone to significant price volatility.
2 cheap penny stocks on my radar
That said, here are two British penny stocks I think could help ISA investors like me make big profits in the coming years:
#1: Bakkavor Group
At 98p per share, UK food producing firm Bakkavor Group (LSE: BAKK) falls just inside penny stock territory. I’d buy this British stock because the long-term outlook for the ‘food to go’ (or FTG) sector remains extremely bright.
Covid-19 lockdowns caused sales in this food segment to fall sharply in 2020 following a decade of strong growth. But analysts at Lumina Intelligence think that demand will bounce back strongly as the world comes out of hibernation. They think the British FTG market will be worth £22.3bn by 2023, up more than a billion pounds from 2019 levels.
Bear in mind that the rise of homeworking could hamper long-term FTG growth rates. A sharp uptick in unemployment could derail food-on-the-move demand too, and profits growth at Bakkavor in turn. But there’s plenty more that I like about this penny stock. Along with its commanding position in the soaring FTG market (Bakkavor supplies the top four food retailers in the country) the company is also accelerating its drive into the huge US and Chinese marketplaces.
On top of this, I think Bakkavor looks like a mighty attractive buy at current prices. City analysts think annual earnings will rise 15% in 2021 and by another 11% in 2022. Consequently the company trades on a forward price-to-earnings growth (PEG) ratio of 0.8. It sports enormous dividend yields of 5% and 5.6% for 2021 and 2022 respectively.
#2: Alliance Pharma
Alliance Pharma (LSE: APH) is another cheap UK penny stock I think deserves a close look right now. At current prices of 82p per share, the company trades on a forward PEG ratio of 0.9, also below the benchmark of 1 that can suggest a share is undervalued. City brokers think earnings here will rise 16% in 2021 and 12% next year.
I like Alliance Pharma because the outlook for global healthcare investment is extremely encouraging. And this particular UK share doesn’t carry as much risk as other drug manufacturers, as it acquires and sells products that have already passed the unpredictable initial development stage and been on the market for some time. Remember, though, that problems with its products can always be recognised further down the line. And this can have repercussions on the bottom line if regulators decide to pull their approval for the sale of its drugs.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.