I think acquiring penny stocks could be one of the best ways to invest in the UK economic recovery over the next few years. However, this strategy might not suit all investors because penny shares tend to be smaller companies. These may be riskier than blue-chip stocks.
Still, I’m comfortable with the level of risk involved with these investments. That’s why I’d buy both of the company’s outlined below for my portfolio today.
Penny stocks to buy
The first company on my list of penny stocks I’d buy is Pendragon (LSE: PDG). The automotive retailer, which also has a technology and service division attached, is seeing a rapid improvement in its fortunes this year.
After a challenging 2020, the company appears to be profiting from solid demand for second-hand vehicles and increasing demand for new cars. Thanks to this rising demand, management expects the company to report a pre-tax profit of £30m for the first half of 2021. That’s compared to a loss of £31m for the same period a year ago.
Further, Pendragon is forecasting underlying profit for the year to range £45m-£50m. That’s a substantial increase on 2020’s £8.2m. Based on this improving outlook, I’d buy the retailer for my portfolio of penny stocks today.
However, I should also note the company also said there “remains a wide range of possible outcomes for the full-year.“
So there’s no guarantee it’ll hit the above targets. Rising costs and a slower than expected economic recovery could hold back growth.
Economic recovery
The other company I’d buy for my portfolio of penny stocks is Lamprell (LSE: LAM). Unlike many other businesses, 2020 was a strong year of growth for this enterprise.
Revenues increased 30% year-on-year, and earnings before interest, tax, depreciation and amortisation (EBITDA) turned positive, turning a loss of $64.4m into a $3.9m gain. Further, the company’s backlog jumped to $522m from $470m.
Lamprell’s revenues expanded last year as the company increased its presence in the renewable energy market. The offshore engineering specialist is currently building on $2.5bn of prospective renewable energy projects. It also expects $6bn of renewable projects to enter the bid pipeline over the next 12 months.
While the company’s oil and gas engineering business is growing steadily, it’s this renewables exposure that excites me. As the green energy boom accelerates, Lamprell should be able to reap the rewards.
That said, like other penny stocks, this business is riskier than larger enterprises. A loss of one big contract could decimate growth for the year. Rising costs could also eat away at group profit margins, which may hold back its recovery,
Despite these risks and challenges, I’d buy Lamprell for my portfolio of penny stocks today, considering its growth potential over the next few years and exposure to the green energy sector.
