For me, the key is to not treat them like get-rich-quick punts. Doing that, I think, is why so many folk lose money.

I look at them like any other stock, and only buy if I think they’re great companies I’d want to hold for 10 years.

Capital & Regional

Capital & Regional (LSE: CAL) only just squeaks in to the penny stock classification, with a market-cap of £99m. But at least the 56p share price is well with limit of under a pound.

It’s a real estate investment company that mostly has its cash in shopping centres, retail parks, and the family entertainment venue Xscape.

Real estate is out of fashion now, so it’s not a surprise to see the share price fall over the past five years. But it does look oversold to me.

With inflation, interest rates, and UK borrowing at sky-high levels, there’s clearly risk ahead for stocks like this.

But I see it as a nice recovery candidate, and it’s on a forecast dividend yield of 9% right now. H1 results on 10 August might make a difference.

Topps Tiles

Topps Tiles (LSE: TPT) shares two of the same things. It’s also only just under the £100m limit, with a £98m market-cap.

And it’s another penny stock with a good dividend, on a forecast yield of 7.6%. Don’t let anyone tell you we have to buy FTSE 100 mega-caps to get dividend income.

The share price has been up and down a bit, and has lost about 15% in five years. But the valuation looks good to me.

Forecasts show a price-to-earnings (P/E) ratio of 19 for this year, which I’d say seems a bit high. But a couple of years of forecast earnings growth would drop that to just a bit over eight by 2025. And that sounds a lot better to me.

The firm does tiles and flooring, so it must share some property sector risks. But I like the look of it.

Renold

My final pick, Renold (LSE: RNO), doesn’t pay a dividend, but it is on a very low forecast P/E of just 5.5.

The share price is down a few percent in five years. But since a low in 2020, it’s more than trebled.

Renold makes machine parts, like chains and gears that go into making conveyors. It sells to all sorts of sectors, including construction and mining, around the globe.

So it faces commodities and infrastructure risk, while things look a bit tight for those industries. But at least there’s diversity there.

I like the ‘picks and shovels’ nature of Renold. And it’s quite literal here too, as it makes things for digging.

Net net debt of £30m might be a bit of a concern for a firm with a market-cap of £67m. I’ll keep an eye on that.

But all three of these are on my list of buy candidates for next time I have cash to invest.

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The market-cap rule can be flexible, but today I’m looking at three that strictly fit the categorisation. And I’m wondering if any if them might be good to buy in December, and could have a positive 2023 ahead of them.

As a general caution though, low-priced shares in very small companies can be volatile, so there’s extra risk here. I’d only consider buying them as a small part of a diversified stock portfolio.

Helium

Helium One Global (LSE: HE1) shares have been picking up in November.

After getting drilling back on track in Tanzania, the company is aiming for spudding at its Rukwa licence in the first quarter of 2023. So that’s what I reckon could drive the share price as we reach the end of 2022.

Helium has been increasing strongly in price over the past few years, as industry demand has outstripped supply growth. So a positive result might give the stock a boost. Conversely, a failure could send the shares plunging, and drive the company back below its £54m market-cap.

Helium One is also not yet profitable, so there’s added risk there. But I think it could be one to watch.

Real estate

The real estate business is in the dumps. And that makes me think Capital and Regional (LSE: CAL) might make a timely buy.

The real estate investment trust (REIT) invests in UK retail and leisure properties, including shopping centres. And with recession and inflation in double digits, it’s no surprise that the stock has performed poorly in 2022. Following on from the pandemic devastation, we’re looking at an 89% drop over five years.

But dividends were resumed this year after being suspended in 2020. The 2.5p interim for 2022 was only modest, though it’s a start. And the shares picked up in November.

There’s still huge uncertainty facing the REIT market at the moment, and we could be in for a couple more rocky years. But if 2022 has been a time of maximum pessimism, I wonder if 2023 might prove brighter?

Recruitment

Shares in recruitment specialist Staffline (LSE: STAF) have continued their decline through 2022.

The dangers to the business posed by the UK’s economic troubles seem clear enough, even if the first half looked reasonably steady. The firm saw a positive, if modest, underlying profit in the period. That did though translate to a small reported loss. And the balance sheet slipped to £13.9m net debt.

Whether Staffline is a good investment for 2023 will surely hinge on how the second half has gone. And to hear about that, we’ll need to wait for a trading update due on 25 January.

I think it might need bold nerves to take the risk of buying in December. But the share price has been regaining ground of late. And company directors have been buying.

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A property penny stock

The first firm I’m considering buying shares in is Foxtons (LSE:FOXT). The estate agent has a market cap bang on £100m, with a share price of 32p. Over the past year, the stock is down 27%.

When I think of property-related stocks, I often go to Rightmove. Or I consider buying a traditional homebuilder, with several options available to me in the FTSE 100. Yet my radar never really picks up on alternatives such as Foxtons.

The company has a natural correlation to the fate of the property sector. This is one of the reasons why the share price is down in 2022, given the fact that higher interest rates and slowing growth puts pressure on property prices and mortgages.

However, I think the stock is good value at current prices. The Q3 results showed that revenue for that period was up 25% on the same quarter last year. The company is seeing strong demand in the lettings side of the group. This makes sense. Even if people can’t afford to buy, they still have to rent and live somewhere.

I admit that the focus around central London property could be more of a risk than a benefit. Yet as far as property stocks go, the lean operating model is appealing to me. I’ve put it on my December watchlist.

An interesting REIT to consider

The second option I like is Capital and Regional (LSE:CAL). With a share price of 53.5p and a market cap of £89m, it fits the penny stock tag.

The business is a real estate investment trust (REIT) that focuses on UK retail and leisure opportunities. It has a portfolio worth around half a billion pounds, mostly in community shopping centres. By picking up rent and leasing payments, the business can generate an income that gets paid out to investors via the dividend.

The share price has dropped by 15% over the past year. A large part of this was due to the halting of the dividend payment due to the business posting a loss as it came through the pandemic. However, I think now is a good time to buy the stock.

In the half-year results from late summer, adjusted profit jumped 87% to £5.8m from the same period in 2021. With stronger occupancy and rent collection, I think the REIT could be a good addition to my portfolio.

I’m adding both penny stocks to my watchlist for December, to consider buying when I have free cash.

The post 2 under-the-radar penny stocks I think have big potential appeared first on The Motley Fool UK.

And as market sentiment improves, I believe investors may reevaluate their prospects and send valuations higher. With that in mind, here are two dirt-cheap UK shares I’d buy today. 

UK shares to buy

The first company on my list is the specialist property real estate investment trust (REIT) Capital & Regional (LSE: CAL). This organisation owns shopping centres around the UK. 

The pandemic has decimated this sector, and Capital hasn’t been able to escape the pain. For its 2020 financial year, the company reported a loss of £200m, nearly 2.5 times its current market capitalisation. 

Property writedowns, as well as lower levels of rent collection, have all hurt the group. However, things are starting to look up. Occupancy across the company’s portfolio was nearly 90% at the end of May.

Moreover, 99% of leased units were open and trading across the group’s seven shopping centres towards the end of June. On top of this, the firm has agreed 38 new lettings and renewals this year. 

These are all positive developments. Still, this business isn’t out of the woods yet. There’s been a structural shift over the past 24 months away from brick-and-mortar stores towards online retail. This is likely to have a lasting impact on the group’s property portfolio. Revenues may never recover to pre-pandemic levels. 

Nevertheless, right now, the stock is selling at a price-to-book (P/B) value of around 0.5. I think this looks dirt-cheap. So, while the stock might have its risks, I’d buy the firm as part of my basket of UK shares. 

Stormy waters

Another company I’d buy for my portfolio of dirt-cheap UK shares is John Wood (LSE: WG). This oil and gas services business has been battered by volatile oil prices recently. Its subsidiary, Amec Foster Wheeler Energy Limited, has also had to deal with an investigation from the UK Serious Fraud Office. This investigation recently ended with a £103m deferred prosecution agreement. 

With the investigation out of the way, and the outlook for the oil and gas industry looking up, John Wood can now focus on growth. 

And as the group moves on, investors can snap up the share for a bargain price. The stock is selling at a P/B value of 0.5 and a forward price-to-earnings (P/E) multiple of 10.2. 

I’d buy the stock for my portfolio of UK shares based on these metrics. However, I should reiterate that this firm’s outlook is tied to that of the oil and gas sector. This sector can be highly cyclical, and so can John Wood’s earnings. As such, the company’s growth is far from guaranteed. 

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Capital & Regional — which owns retail and leisure properties predominantly in London and the South East — said that 99% of its retailers are trading again following the easing of coronavirus restrictions. It commented that “footfall has been robust and many of our retailers are reporting strong sales and consumer engagement.”

The small-cap is also witnessing improved momentum in leasing and rent collections. It has received 70% of 2021 rents due to date and has agreed outline deals with a number of occupiers for additional collections. Furthermore, Capital & Regional’s collection figure for last year has climbed to 84%.

Meanwhile occupancy stands at 89%, the UK share said, though this excludes three empty units previously occupied by Debenhams. The firm is in discussions with suitors over taking on the space vacated by the failed department store chain.

Capital & Regional added that “with confidence returning and light finally appearing at the end of the tunnel, discussions with our banks have been progressing well.” The business has agreed waivers on all of its properties until October with the exception of The Mall in Luton. Here the company is seeking a covenant waiver beyond July.

Another UK share moving through the gears

News emerging from Marshall Motor Holdings (LSE: MMH) on Friday was also extremely positive. In fact, latest trading details from the UK retail share propelled the share price to fresh five-year highs of 200p. Marshall Motors shares are now 60% more expensive than they were this time last year.

In an unscheduled update, the AIM company lifted its forecasts for the first half and for the full year. It said that “the market has continued to benefit from positive tailwinds, including a recent unprecedented used vehicle value appreciation and favourable demand-to-supply conditions for both new and used vehicles”. Marshall Motors added that its “strong outperformance” of the broader auto market has continued as well.

As a consequence the retailer expects to report “exceptionally strong” profit and cash generation for the six months to June.

Marshall Motors warned that there are high levels of uncertainty for the second half of 2020, however. It said that a shortage of new vehicles due to a global semiconductor drought, a realignment of pre-owned car prices, and the ongoing public health emergency could all dent performance.

The UK share said that these issues create a wide range of possible outcomes for its full-year results. But it added that underlying profit before tax should be “significantly ahead” of market expectations as well as well above current records.

The post Here’s what UK shares Capital & Regional and Marshall Motors reported today! appeared first on The Motley Fool UK.

As such, buying penny stocks might not be suitable for all investors.

However, I’m comfortable with the level of risk involved in buying these companies. There are a couple of businesses I would acquire for my portfolio today as economic reopening plays. 

Penny stocks to buy 

Capital & Regional (LSE: CAL) is the first company I would buy as a recovery play. The firm, which owns seven shopping centres around the UK, has muddled through the coronavirus crisis. It collected just 59% of rents due for the first quarter of 2021. I think that illustrates the challenge the group now faces.

The good news is, customers are returning. At the end of April, 95% of its retail units were open. Footfall was approximately 80% of 2019 levels in the two weeks following the reopening of non-essential retailers on 12 April.

These figures indicate that the outlook for Capital & Regional’s tenants is improving, and that should bode well for the company’s rent collection. That’s why I would buy the group for my portfolio of penny stocks. 

The risks of investing here are clear. Another lockdown could be devastating for the company’s tenants, leading to another drop in rent collection and piling pressure on Capital & Regional’s balance sheet. 

Travel resumes

Another company I would buy for my portfolio of penny stocks is Stagecoach Group (LSE: SGC). This business also looks set to benefit from the reopening of the economy.

The public transport provider has seen sales drop to around 50% of 2019 levels, but I’m not worried about what happens to the business in the near term.

Government initiatives, such as the National Bus Strategy for England, and other plans to get more vehicles off the road, suggest demand for public transport will only increase over the next five to 10 years. This could be a splendid tailwind for Stagecoach. This potential has convinced me the company is worth adding to my portfolio of penny stocks. 

Of course, the company has some severe headwinds to overcome first. Another coronavirus wave could set back its recovery. What’s more, if office use never returns to 2019 levels, demand for public transport may remain permanently depressed. 

Reopening trade

The reopening of pubs and restaurants in England has gone better than many expected. That’s why I would buy hospitality business Marston’s (LSE: MARS) for my portfolio of penny stocks. 

The company reopened around 70% of its managed and franchised pubs from 12 April. And the good news is figures show that like-for-like sales at drink-led pubs across the country fell 11% in the last few weeks of April compared to 2019 levels. That’s despite the fact these premises were only allowed to open outdoors. 

I think these figures could set the tone for the rest of the year. That’s why I would buy Marston’s in my recovery portfolio. However, I should note that the business is financially stressed and recently had to secure a waiver from its creditors to continue operating. 

I think this makes the company one of the riskier penny stocks listed in this article. 

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Whatever the short-term outlook, I think the future will be healthy for the property market, and I also like a few brick & mortar construction stocks I think will do well.

Here I’m looking at two property-related stocks, which have caught my attention for opposite reasons — one was in Thursday morning’s list of top risers, the other in the top fallers list.

Building materials supplier

I took a look at Grafton Group (LSE: GFTU) a couple of weeks ago, as one in the brick & mortar category. Although its recent earnings growth was expected to slow, I liked the look of it as a long-term defensive stock. Thursday’s third-quarter trading update included a profit warning, and talk of “softer third quarter trends which have continued into October” didn’t help the share price, which dropped 10% during the morning.

While the UK’s construction business is struggling with the uncertainties brought by a potentially traumatic Brexit, the firm now expects to miss its previous expectations by around 4% to 8%. That’s despite constant-currency revenue having grown by 3.6% in the nine months to 30 September, and by 3.1% on a like-for-like basis. But the downturn can be seen in Q3, which saw like-for-like revenues gain just 0.9%.

Assuming a 6% undershoot on forecast earnings, we’re now looking at a forward P/E of 13 after the share price dip. The predicted dividend would still be covered more then three times by reduced earnings, so I think that looks safe, and it would yield 2.4%. That’s not the biggest dividend in the market, but as it’s so well covered and progressive, I find it attractive.

I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.

Small-cap REIT

The big riser is the Capital & Regional (LSE: CAL) real estate investment trust, whose shares jumped 20% on Thursday. The reason is simple. It’s a big investment in the firm by Growthpoint Properties, which has made an agreed partial offer for 30.3% of the existing share capital and will invest a further £77.9m in a new share issue. The result of the deal will see Growthpoint holding approximately 51.2% of the new enlarged share capital.

Prior to the price leap on the news, Capital & Regional shares were trading on a forecast P/E of only around five, which is super low. When that happens to a share that’s genuinely undervalued, a buyout offer is often the way it’s resolved. But it can also result in existing shareholders being forced to sell their shares at a price that, even if it’s at a premium, they might not consider attractive in the long term.

This partial offer can help solve that dilemma. In the words of the company, if offers shareholders “the opportunity to realise an attractive premium to the current share price… while affording them the opportunity to participate in the future value of a recapitalised Capital & Regional.”

I think shareholders should be pleased by the news.

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Despite full-year results a few months later being met reasonably positively, my colleague Roland Head told us he was “not completely convinced.“

That was a canny analysis, as the shares continued on a lukewarm trajectory, before falling 15% in response to 2019 first-half results on Monday.

The company spoke of a “stable financial performance during a period of significant transformation,” reporting a small fall in revenue from £31.8m in the same period last year to £31.5m this time. A statutory first-half loss of £32.5m reported a year ago was drastically reduced to just £2.2m, but adjusted EBITDA for continuing operations looked less impressive with a drop from £4.6m to £4.4m.

Net debt looks stable at £25.4m, from £26m, and there’s “significant headroom within its existing facilities.”

Turning around

The trouble is, IDOX is still deeply immersed in a massive restructuring, having taken on new management from board level to senior levels throughout the business. There are disposals and refocusing on key assets going on, together with changes in accounting procedures.

That all adds up to… I haven’t the faintest idea what’s going to happen or what the company might be worth if and when it all gets back on track.

And it means that I’m sticking to my new rule of recovery investing — never buy a recovery stock until after it’s recovered. I think it’s particularly appropriate in the current economic climate, when several stocks have been crashing and then going on to do even worse.

REIT crunch

About a year ago, the Capital & Regional (LSE: CAL) real estate investment trust (REIT) was looking positive, as things were progressing well with its development plans at The Mall in Walthamstow.

I generally like REITs as a relatively low-risk way to invest in the property market. If there’s one investment field in which I think it’s wise to go for a collective investment rather than, say, taking on a residential buy-to-let mortgage and shouldering all the risks yourself, this is surely it.

Unfortunately, as I write these words, there’s a major fire at the the Walthamstow mall, and the Capital & Regional share price has so far taken an 8% hit. The company has not been able to say much so far, beyond assuring us that it will provide further information “once the fire has been extinguished and we have fully assessed the situation.”

New strategy

Shares in the trust, which specialises in shopping centres, had already been in a significant slump over the past two years. In full-year results released in March, chief executive Lawrence Hutchings spoke of “the structural changes currently under way in the retail sector,” stressing the apparent success of “the new strategy we launched just over a year ago.”

As REITs go, I thought Capital & Regional was oversold and looked like a potential buy — and it still might be, as the Walthamstow property is just a part of its portfolio.

And it does help stress the added safety of a REIT — imagine the damage a house fire could do to your property investments if you’d, well, bought a house.

The post Is this a must-buy small cap stock after 15% share price fall? appeared first on The Motley Fool UK.

One company offering an improving dividend outlook is FTSE 100 pharma stock AstraZeneca (LSE: AZN). Set to experience rising profitability over the medium term, this could boost its dividend prospects.

Also offering an impressive income outlook is a smaller company which reported positive news on Tuesday.

Impressive outlook

That company in question is real estate investment trust (REIT) Capital & Regional (LSE: CAL). The shopping centre specialist released news that it’s received formal consent for its extension and development plans at The Mall Walthamstow. It will transform the Walthamstow town centre, according to the company’s update, with an 86,000 sq ft extension planned for the existing shopping centre as well as up to 500 new residential homes.

Looking ahead, the plans could help to boost Capital & Regional’s bottom line growth rate over the medium term. The company is expected to report a rise in earnings of 7% in the current year, followed by additional growth of 6% next year. This suggests its strategy is performing well, with the slowdown in the UK economy not seeming to have affected its financial performance.

With a dividend yield of around 8.5%, the stock has significant income appeal. Its price-to-earnings (P/E) ratio of around 12 indicates it offers a margin of safety, which suggests that significant total returns could be on offer over the long run.

Changing business

AstraZeneca’s income potential also appears to be positive. Certainly, a glance at its track record of dividend growth indicates that it lacks appeal. However, the company has faced major challenges in recent years from the loss of patents that has resulted in rising generic competition and a lack of income growth. This has forced it to freeze dividends for a number of years.

In future, though, the company’s aggressive acquisition activity is set to yield positive results for its income profile. AstraZeneca is expected to deliver bottom-line growth of 12% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1.8, which suggests that it could offer good value for money. Moreover, it means that dividend growth could begin to improve from 2019 onwards. This could help to boost its dividend yield of 3.6%.

With AstraZeneca also having a defensive business profile, it could perform well in a variety of market conditions. For investors who are concerned about the outlook for the UK economy, this attribute may make it more appealing. As such, now could be the right time to buy it ahead of what may prove to be a period of stronger financial performance that leads to rising dividends.

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When I last wrote about the company back in August, I dismissed it as too highly leveraged for a company that was facing down falling footfall at high street stores, stagnant consumer confidence and Brexit-related falls in property valuations.

However, the company’s full-year results released this morning offer an opportune moment to reassess my initially negative outlook. Against a tough backdrop for many peers, Capital & Regional performed very well during the latest period.

Like-for-like net rental income bumped up 1.9%, occupancy rates increased substantially from 95.4% to 97.3% year-on-year, and rising profits led to a 7.4% increase in total dividends per share to 3.64p.

And the group has continued to perform well after its December year-end with footfall at its centres up 3.1% in January and February, which was exceptional considering the national index saw footfall contract 2.9% during these months.

This is one area where I was definitely too quick to judge, as going back over the group’s entire portfolio reveals it may hold up better during a recession and against the threat of e-commerce than I expected. Much of this is due to management filling its centres with relatively low-price stores such as McDonald’s and Lidl that cater to daily necessities and should prove fairly resilient during any downturn.

On top of this possible resiliency, the stock also offers a 6.6% dividend yield and a bargain share price that today represents a whopping 18.5% discount to net asset value (NAV). While these facts certainly merit further research on my part, I must say the group’s 46% net debt-to-property value ratio is still far too high for my taste and broader trends negatively affecting the sector lead me to continue avoiding Capital & Regional. 

A larger, more diversified option 

One other REIT that’s on my watch list for offering a high yield, relatively attractive valuation and a management team that’s proving adept at reorienting its portfolio to adapt to changing consumer habits is British Land (LSE: BLND).

The company has a much larger and varied portfolio than Capital & Regional with a collection of very pricey commercial real estate developments existing alongside more high-end shopping centres. This mixed estate leaves the company more vulnerable to any economic downturn, but with its loan to value ratio down to 26.9% as of September, it has the balance sheet to withstand the next recession.

Furthermore, the group’s management team is already planning for this eventuality by disposing of non-core sites at lofty prices and returning the cash to shareholders rather than buying over-priced property. This leads to a 4.7% dividend yield for shareholders alongside a share buyback programme of £300m for the fiscal year to March.

And in the meantime the company is still reaping the rewards of a stable economy as its NAV rose 2.6% in H1 to 939p, thanks to a 1.4% valuation uplift and stable underlying profits despite large disposals. And for contrarian investors, British Land could be a bargain buy at its current share price of 635p, well below its NAV.

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