A lot of UK share investors don’t like to buy cheap companies like penny stocks. Their low cost means that this type of stock is often bought and sold in huge volumes, something that can cause significant price volatility.
I buy stocks for the long term, though. And so the prospect of temporary share price choppiness doesn’t put me off from buying low-cost shares. Here are a couple of top nearly penny stocks I think could soar in value in the years ahead.
The right medicine
The Alliance Pharma (LSE: APH) has risen an impressive 50% during the past 12 months. And in recent sessions this former penny stock has barged to record highs above £1. I reckon the business could gain further traction too when half-year results are unveiled on Tuesday, 21 September.
Alliance Pharma owns the marketing rights to scores of heavyweight brands in the fields of consumer healthcare and prescription medicine. These products, like Kelo-Cote scar treatment, Nizoral dandruff shampoo, and (following recent acquisition action) menopause reliever Amberen, sell in huge quantities in more than 100 countries. Indeed, latest financials showed like-for-like sales of its health products up 8% in the six months to June.
Its successful M&A-led growth strategy has helped Alliance Pharma’s earnings rise 33% over the past five years. So I’m encouraged that the stock has plenty of appetite and financial clout to keep going. But acquisitions are risky business and past form is not always a reliable guide to future performance. Revenues from acquisitions can disappoint and costs can swell, taking a big bite out of profits.
A dirt-cheap penny stock I’d buy today
It’s clear that housebuilding activity in the UK needs to ratchet up several gears over the next decade. And this bodes well for manufacturers of building products like Michelmersh Brick Holdings (LSE: MBH). I’ve already bought brickmaker Ibstock for my Stocks and Shares ISA for the very same reason.
I’d buy this nearly penny stock before it releases half-year results on Tuesday, 7 September. Most recent financials in June revealed “strong demand” for its products amid a “very active” construction sector. Many major housebuilders are ramping up production as favourable lending conditions supercharge demand for first-time buyers. So I expect trading at Michelmersh to remain quite robust for some time to come, a theme I don’t think is reflected at current prices. Today the low-cost share trades around 136p, resulting in a forward price-to-earnings growth (PEG) ratio of just 0.5.
I think Michelmersh is a top buy despite the impact that an economic downturn could have on its top line. The UK economy has bounced back strongly following 2020’s Covid-19-related washout. But the rebound could prove temporary and home sales could falter if the Delta variant continues spreading aggressively.
