A lot of UK shares are selling for less than £1 these days, and I reckon many of them look good value. If I had £3,000 to invest in three penny stocks today, which ones would I buy? I’m going to select three from the FTSE 250 to put on my Stocks and Shares ISA shortlist.
First is Coats Group (LSE: COA). Over the past 12 months, Coats shares are up 12% — but down 17% over two years. At 67.5p as I write, they’ve picked up 16% since a low in May. Still, thanks to a weak spell preceding the most recent gains, I still think I’m looking at a buy here.
May’s trading update revealed a 28% jump in quarterly revenue over last year. That’s against the first few months of the pandemic crash though. But more encouragingly, revenue was 3% ahead of 2019. Organic revenue was just 1% ahead, but that still suggests business is getting back to normal. I’m already wondering how long Coats will still qualify as a penny stock.
The big risk is debt, as the company has just completed a refinancing deal. But at 31 April, net debt of $162m was actually down on December’s $181m figure. I’ll be watching the balance sheet, but this is one I might buy.
Outsourcing recovery
Outsourcing specialist Mitie Group (LSE: MTO) crashed very heavily in 2020, losing more than half its value by late March. And the shares had dropped to real penny stock levels of less than 30p by November. But we’ve seen a remarkable comeback since then, with the Mitie share price already back to pre-pandemic levels.
So I’ve missed one of the strongest post-pandemic recoveries in the FTSE 250. But is Mitie still a stock I’d buy now at 69p? I think it is. The year to March brought in higher revenue than 2020, and operating profit fell only a modest 26%, impacted by Covid-19. A £190m rights issue has strengthened the balance sheet, and there’s very little net debt.
Oh, and Mitie snapped up Interserve’s Facilities Management business in November, doing what all good Foolish investors should do — buy assets while they’re cheap. However, there are still plenty of economic risks on the horizon, and the outsourcing sector might need another year to stabilise. But Mitie joins my watchlist.
Real estate penny stock
Am I mad to consider buying a commercial real estate investment trust? It’s UK Commercial Property REIT (LSE: UKCM), and I don’t think I’m mad at all. At 77p, the shares are down a modest 6% since the start of the pandemic crash. That’s after an impressive 2021 recovery that’s helped the price gain 12% in 12 months.
At the end of 2020, the trust’s net asset value stood at £1.1bn. Even after the carnage of last year, that’s still only fractionally down on 2019’s £1.2bn. And over 10 years, the company has “delivered a NAV total return of 85.6% compared to the Association of Investment Companies peer group of 32.4%.“
UKCM also had very low year-end net gearing, of just 6.4%, compared to a sector average of 31%. So I don’t see any liquidity danger, which is something that often weighs on penny stocks.
If we suffer any prolonged commercial property weakness, I think the share price could stagnate for a period. But I’m seeing an attractive long-term dividend investment here.
