To identify these opportunities, investors often use valuation metrics like the price-to-earnings (P/E) ratio and the price-to-sales (P/S) ratio. Even better is the P/E growth (PEG) ratio, which accounts for earnings growth compared to price. 

But buying a falling stock can be risky. After all, just because a share has dropped doesn’t mean it’s due for a rebound. Some never recover at all.

So how can investors separate a genuine bargain from a value trap? I look at things like the company’s market share, its cost controls, operational efficiency and whether the management team has a clear plan to navigate short-term pain. 

On that note, one small-cap stock that recently caught my attention is McBride (LSE: MCB).

Could this be a hidden gem?

McBride specialises in private-label manufacturing of cleaning and personal care products, supplying many of the major UK supermarkets. It’s not a glamorous business, but it’s a necessary one — and that counts for something in an uncertain economy.

The share price collapsed 22% in July following a profit warning, knocking it back to 124.6p. But zooming out, it’s still up 16% year-to-date, suggesting the long-term trend isn’t entirely broken.

More importantly, at this price, the valuation metrics are extremely compelling. The P/E ratio stands at just 5.45 and its PEG ratio’s a remarkably low 0.04. That could suggest the market’s significantly undervalued the company’s earnings potential.

McBride’s also highly profitable on a return basis. Its return on equity (ROE) sits at a staggering 64%, well above the sector average. That said, the business operates on thin margins (just 5%), which could be squeezed further if input costs rise or if customers continue to trade down to cheaper alternatives.

Balancing reward and risk

A glance at the balance sheet shows a mixed picture. The company carries £117m in debt against £81m in equity. That’s not ideal — particularly if earnings disappoint again. However, it does produce a decent £51.5m in operating cash flow, which should provide some flexibility in the short term.

What worries me more is the sector. Private-label goods are in high demand, but they’re also fiercely competitive, with low-cost rivals always circling. And with a market-cap of just £213m, McBride’s more vulnerable to volatility and sharp swings in investor sentiment.

Seeking value

McBride looks like a compelling opportunity for small-cap bargain hunters — but it isn’t without risk. The profit warning in July was a blow and further earnings disappointments could push the share price even lower. 

But I believe it’s currently one of the more interesting developments on the UK stock market today. It has a deeply discounted valuation supported by solid management and well-established operations.

For value-focused investors who can stomach some turbulence, it’s certainly one worth considering — and one that’s now firmly on my radar.

The post After a 22% July dip, could this be among the most undervalued shares on the UK stock market? appeared first on The Motley Fool UK.

A low P/E might hint at a bargain — or it could be flashing a warning sign. That’s because these numbers alone don’t guarantee growth or a turnaround. They’re anchored in current or forecast earnings that depend on wider economic conditions, demand, supply chains and consumer habits. In other words, today’s ‘cheap’ stock might stay cheap if profits don’t recover.

Two FTSE shares currently stand out to me with P/E ratios under 7. But do they represent genuine bargains, or potential value traps?

The struggling private label goods giant

McBride (LSE: MCB) is Europe’s largest supplier of private label and contract-manufactured household cleaning products. From detergents to disinfectants, its goods fill the shelves of major supermarkets under own-brand labels.

Unfortunately, the company’s fortunes have plateaued. The share price tumbled 13% this week after its full-year trading update on 16 July revealed that operating profit will only be in line with expectations, largely due to a slowdown in demand for private label products.

This follows a price boost back in January, when McBride announced it would resume paying dividends. That’s a promising development that adds significant income value to the stock.

After the latest sell-off, it now trades on a rock-bottom P/E ratio of 5.8. That might seem tempting, but the relatively high P/B ratio of 2.8 tells a less comfortable story. 

What’s more, the forward P/E has climbed to 6.3, implying earnings are expected to decline further.

If the group can’t reignite demand or carve out new growth avenues, it’s hard to see the share price staging a meaningful comeback. For now, I’d consider steering clear until management delivers a workable turnaround strategy.

A solid foundation

By contrast, I think Keller Group‘s (LSE: KLR) an undervalued stock worth considering. The FTSE 250 geotechnical specialist handles piling, grouting and ground engineering projects across the globe. Despite a subdued performance this year, the shares are still up an impressive 124% over five years.

Keller looks attractively valued, with a current P/E of 7.2 that drops to 6.8 on a forward basis, suggesting the market expects earnings to improve. That view’s supported by earnings per share rising a hefty 60% year on year.

Profit margins are modest, but a robust return on equity (ROE) of 25.6% underscores management’s efficiency. Meanwhile, Keller offers a 3.55% dividend yield with a low 25% payout ratio. With over two decades of uninterrupted dividend payments, it has shown resilience through multiple cycles.

Of course, risks remain. CEO Michael Speakman steps down in August, which could unsettle leadership. Deutsche Bank also recently downgraded the stock to Hold, trimming its price target by nearly 8%.

My view

For me, McBride looks like a value trap — a low P/E masking weak underlying demand. Keller, on the other hand, seems genuinely undervalued, with a track record of rising earnings, reliable dividends and a forward outlook that still points upward. 

Among FTSE shares trading on low multiples, that’s exactly the combination I look for.

The post With P/E ratios below 7, are these undervalued FTSE shares bargains — or value traps? appeared first on The Motley Fool UK.

Opportunistic companies – both in the UK and the US – taking advantage of low valuations has caused some stocks to jump. And I think this could well be a source of outsized returns in 2025.

Acquisition season

It’s been quite the year for acquisitions. And this has driven share prices higher on both the FTSE 100 and the FTSE 250. 

News of a takeover sent the Hargreaves Lansdown share price up 53% in 2024. The transaction hasn’t been completed yet, but investors who owned the stock in January stand to do very well when it does.

On the FTSE 250, Britvic is also set to be acquired. As a result, the share price is also up 53% since the start of the year, with the deal set to complete in early 2025.

By itself, the possibility of the share price getting a boost as the underlying business gets acquired isn’t a reason to buy any stock. But it’s something investors should be aware of as part of an investment thesis.

Anglo American

Anglo American‘s (LSE:AAL) in the process of restructuring. It’s selling off its diamond, platinum, and coal operations, to focus on iron ore, copper, and fertiliser.

Since I’m much more optimistic about the outlook for copper than diamonds, I see this as a good move. But concentrating the portfolio does increase the risk of a downturn in industrial metal prices.

Unfortunately, shrinking the business probably makes it an easier acquisition target. And with BHP attempting a takeover earlier this year, I wouldn’t be surprised to if it happens in 2025.

As a shareholder, I’d rather have the long-term profits from copper mining than a quick cash return. But I’m alive to the possibility of Anglo American not being a member of the FTSE 100 this time next year.

McBride

At the other end of the scale, McBride (LSE:MCB) isn’t even big enough to get into the FTSE 250. But as the leading manufacturer of private-label cleaning products, it’s a big deal in its own way.

That however, isn’t what catches my attention – manufacturing can be a difficult business if inflation picks up. I’m more interested in its brands, which include Oven Pride and Surcare.

I think these could be valuable for a firm like Unilever or Reckitt and I wouldn’t be hugely surprised to see something happen here. Whether they would go for the private label division’s another question.

Unlike Anglo American, I haven’t heard news of a potential McBride takeover. But it wouldn’t surprise me to see some interest emerging next year.

Buy now before it’s too late?

I own shares in Anglo American, but not in McBride. But the possibility of a takeover doesn’t factor heavily in my thinking, in either case. 

Attempting to get ahead of a potential acquisition is a risky business. So while it could pull UK stocks higher in 2025, I’m not counting on it for my own portfolio.

The post Which UK shares could be takeover targets in 2025? appeared first on The Motley Fool UK.

Warpaint London

Specialist cosmetics supplier, Warpaint London (LSE: W7L) is one example. Its shares have been in glorious form — moving 130% higher in the last 12 months.

This move isn’t unwarranted. In April, the company reported a 40% jump in full-year sales to almost £90m in 2023. Pre-tax profit rocketed by 136% to just over £18m. The firm’s finances are also in fine fettle with no debt on the balance sheet.

Then again, I do need to remember that smaller company stocks tend to be volatile. As evidence of this, Warpaint shares roughly halved in price back in 2018. I fancy even the most risk-tolerant investor would have struggled to hold their nerve back then.

Another thing to be aware of is that this stock is no longer cheap. In fact, I’d need to stump up the equivalent of 24 times forecast FY24 earnings to get involved. That’s more than I’d like to pay.

For now, I’m keeping Warpaint on my watchlist in the hope that there’s some profit-taking around the corner.

Yu Group

Another small-cap stock that’s done the business for investors is Yu Group (LSE: YU). Shares in the independent gas and electricity supplier to the corporate sector have gained a stonking 170%.

Again, this can be justified. The company managed to grow its latest revenue by 65% to £460m. Pre-tax profit came in at £37.7m. That’s an increase of 580%!

Can this continue? There’s an argument for saying that many UK stocks are still undervalued relative to other markets (such as the US). A price-to-earnings (P/E) ratio of just 10 suggests Yu could be one of them.

More specifically, management estimates it still only has a 1.4% share of a “£50bn+ addressable business-to-business energy supply market“. With a forward order book of £826m, I reckon there could be further share price growth ahead.

But note that Yu has no control of energy prices. So, that’s a risk I’d need to bear in mind when cash becomes available to invest.

McBride

A final UK share that’s smashed the FTSE 100 is McBride (LSE: MCB). The manufacturer of cleaning products has delivered a staggering gain of over 330% thanks to ongoing, excellent sales momentum.

In its last update on 30 April management reflected that “strong operational performance” and “continued high demand levels” had led trading in March and April to be ahead of its own expectations. Full-year adjusted operating profit would now be roughly 10% ahead of analyst projections at the time of reporting.

Despite this, the shares still trade on forward P/E of just five! What gives?

Well, there are a few potential issues. First, the company has already highlighted that certain materials it uses are rising in price. Supply chain risks due to “geopolitical tensions” remain as well.

The biggest concern for me, however, is the massive debt pile (which is now far exceeds the company’s actual value).

I’d want to see this fall considerably before diving in.

The post Never mind the FTSE 100. These small-cap UK shares are on fire! appeared first on The Motley Fool UK.

But it is a reality that, from time to time, other firms’ leadership teams also see value in great companies and launch acquisition bids, resulting in a spike in the targeted firm’s share price.

With that in mind, here are a handful that could be considered as ripe for the picking!

Dr Martens 

What it does: Dr. Martens designs and sells iconic footwear around the globe.

By Ben McPoland. After losing around 82% of its value since going public in 2021, Dr Martens (LSE: DOCS) looks like a prime takeover target to me.

Its market cap is now just £755m, as I write. That seems low considering that the FTSE 250 bootmaker was valued at £3.7bn just three years ago.

The CEO is stepping down after sales have slowed and the firm issued its fifth profit warning in three years. Worryingly, there is ongoing weakness in its key North America market, where management says “it will take longer to see an improvement in USA results than initially anticipated.”

Some are now pushing for a strategic review. According to Reuters, one large shareholder recently wrote to the board to say: “Maintaining Dr Martens as an independent publicly traded company is likely no longer in the best interests of shareholders.“

Despite the slump in sales, the company is still profitable and the brand remains strong in most global regions. So I reckon it’s just a matter of time before at least one bidder emerges.

Ben McPoland does not own shares in Dr Martens.  

ITV

What it does: ITV is the UK’s largest commercial broadcaster and operates a vast global production division.

By Royston Wild. ITV’s (LSE:ITV) share price has been under sustained pressure as weak advertising revenues have smacked profits. The former FTSE 100 broadcaster is down 7% over the past year, meaning over the last five years it has lost a whopping 45% of its value.

As a result, the company now trades on a rock-bottom forward price-to-earnings (P/E) ratio of 8.5 times. This is bound to attract the attention of a number of suitors.

The jewel in ITV’s crown is its sprawling production arm. ITV Studios — which is home to global hits like Love Island and The Voice — now accounts for 51% of group revenues.

And sales here are growing ahead of the market, up 4% to record levels in 2023. In an age when streaming companies are crying out for new content, ITV’s production prowess could make it a hot takeover target. Might the likes of Netflix or Amazon soon come calling?

Royston Wild does not own shares in any of the shares mentioned.

McBride

What it does: McBride makes own-label cleaning products. It also has a portfolio of brands including Surcare and Oven Pride.

By Stephen Wright. A good acquisition target needs three things. It needs an asset someone else wants to buy, it needs to be small enough to acquire, and it needs to be cheap enough to look like a bargain.

Cleaning products company McBride (LSE:MCB) has all three. The company’s valuable asset is its portfolio of brands, which includes Surcare and Oven Pride. 

With a market cap of £187m, it’s small enough to be an easy acquisition target for the likes of Unilever. Moreover, it could be a good addition to the FTSE 100 company’s existing product line.

The issue with price is a bit more complicated. At a price-to-earnings (P/E) ratio of 10, the stock looks like good value but not amazing value. 

Growth over the last decade has been pretty anaemic, which is why I wouldn’t buy the stock. But if a bigger company could energise sales and cut costs, it could be an interesting acquisition target.

Stephen Wright owns shares in Unilever

Smith & Nephew 

What it does: Smith & Nephew is a healthcare company that specialises in joint replacement technology and advanced wound management. 

By Edward Sheldon, CFA. There are a lot of UK companies that I consider to be takeover targets right now. But one I want to highlight is medical technology business Smith & Nephew (LSE: SN.). 

There are several reasons I view this healthcare company as a potential takeover target. One is that it has a lot of long-term growth potential due to the world’s ageing population. So, established players in the medical device industry (like Johnson & Johnson or Stryker) might see an acquisition as a way to grow their revenues. 

Another is that it’s currently trading well below its highs at a very low valuation. At present, the price-to-earnings (P/E) ratio using the 2025 earnings forecast is just 11. That’s a low multiple for a high-quality healthcare business. 

Now, of course, we may not see any takeover action here in the years ahead. At the moment, the company is still recovering from Covid setbacks. 

However, it’s worth noting that in 2022, analysts at RBC named the company as one of their top UK takeover targets. So, I’m not the only one who sees the potential for an acquisition here. 

Edward Sheldon owns shares in Smith & Nephew. 

The post 4 UK shares Fools think could be takeover targets appeared first on The Motley Fool UK.

Now the share price has hit a pound and the market capitalisation is £174m.

The penny stock soared 144% in the past six months. But in the past year, it has almost quadrupled, moving up 282%.

Why – and could the lessons help me find great penny stocks to buy today, before they soar?

Cleaning up with McBride

Before we begin, you may be wondering what McBride does. It is not a household name, but you have very likely used its products.

That is because it is the manufacturer of household and personal care goods sold by supermarkets across Europe under their own names.

Why the stock sold for pennies

McBride has been listed on the stock market for decades. Its share price hit over £2 at the end of 2017.

So why, within just a few years, had it become a penny stock?

Less than two years ago, McBride shares cost 16p each.

A look at that year’s results tells the story. Revenue was basically flat. But an £11m pre-tax profit in 2021 had turned into a £36m pre-tax loss. Net debt jumped £46m to £164m.

The company’s auditors included in their assessment of the books “a material uncertainty in respect of going concern”.

Some free lessons

Such concerns can affect other penny stocks so it is worth taking time to understand them. I think McBride offers me some useful lessons as an investor, for free!

Flat revenue on its own is not necessarily a bad or good sign.

Some people think a successful company ought to be growing its revenue. In fact, though, some contracts make a company money but others can be loss-making. So reducing revenue in the right way can actually help profitability.

In the case of McBride, revenues had been in decline for some years before 2017, rose for a couple of years, then fell. When looking at any business, I think it is important not only to look at revenues but at the quality of those revenues.

Studying the balance sheet

The big swing into the red in McBride’s 2022 accounts combined with rising and substantial net debt (relative to the company’s market capitalisation) at that point was a key reason I never bought into the penny stock.

If an indebted company keeps losing lots of money, there is a danger it either gets even more indebted or ends up bankrupt. In that case, even paying pennies for a share would be bad value.

So when an auditor expresses material uncertainty about whether a company can continue as a going concern, I take that seriously. It is an enormous red flag for me, as I am an investor, not a speculator.

Looking for bargains

Last month, McBride announced half-year revenues up 9.8%, pre-tax profit of £17m compared to a £20m loss in the prior year period, and a fall in net debt, although it remains substantial at £146m.

With a turnaround still in progress, I have no plans to invest.

McBride has soared lately but some penny stocks just keep losing value. Being rigorous selecting the ones I do buy can hopefully make me more likely to choose winners!

The post This former penny stock has almost quadrupled in a year! Why? appeared first on The Motley Fool UK.

As I type, shares in the household and professional cleaning products manufacturer have soared over 300% in 2023.

What’s gone so right?

In a nutshell, its success is all down to the company upgrading guidance several times.

Having endured a rise in costs in recent years due to the pandemic-related disruption of supply chains and the Ukraine-Russia conflict, McBride announced in July it was back to making a profit. News of business wins and strong demand from existing clients was also lapped up by the market.

Not that this reaction is really that surprising. There were once concerns that McBride might be a goner.

What makes the small-cap’s performance particularly noteworthy however, is that a good chunk of its gains have only been made in the past couple of months.

Go back to mid-October and the stock was changing hands for around 32p. But in November, McBride said that it was continuing to trade ahead of expectations. Overall volumes were 8.2% higher in the first four months of the current financial year. Budget items were proving particularly popular as consumers looked to make their pounds stretch.

By mid-December, those very same shares were trading for almost 90p a pop.

Still cheap?

Despite the massive gain seen over this year, McBride still trades on a forecast price-to-earnings (P/E) ratio of less than six. That looks screamingly good value, at least initially.

Then again, no investment is devoid of risk. The company has already said it “remains alert” to the impact of world events on commodity markets. This may lead to more cost pressures kicking back in for what is already a (very) low-margin business.

Another, more general thing to remember about small-cap stocks is that they tend to be far more volatile than the average FTSE 100 juggernaut. That can lead to huge gains in the good times but the opposite can also be true when economic clouds gather, or during a simple bout of profit-taking.

Too much debt for my liking

My main concern here is the debt pile. This is currently around the same as the value of the entire business!

Now this doesn’t matter quite so much if trading keeps improving. But that ‘if’ is the most important word in that sentence.

Having a weak balance sheet also means that dividends aren’t on the menu. That’s understandable. The problem is that I won’t be compensated if the shares now fall. Being paid to be patient is one thing, not being paid while my holding shrinks in value and other stocks fly is another.

All this helps to explain that still-seriously-low valuation. But it’s hardly comforting.

Not for me (probably)

I congratulate any Fools who dared to invest in McBride at the beginning of the year. As much as I would have enjoyed those gains, I know my risk tolerance wouldn’t have allowed it.

For now, I’m happy to sit on the sidelines. If the debt reduces, I may reconsider.

In the meantime, I’m concentrating on picking up some much higher-quality stocks before the next bull market arrives.

The post This UK penny stock has rocketed 300% in 2023. Is it too late to buy? appeared first on The Motley Fool UK.

Cleaning and hygiene

McBride is the leading European manufacturer and supplier of private label and contract-manufactured products for the domestic household and professional cleaning and hygiene markets. It sells over 1bn products a year, to 49 of the 50 top grocery stores in Europe.

So what’s the current state of play with the McBride share price? Well, a penny stock is one that trades for less than £1. McBride shares are currently trading for 34p. At this time last year, the shares were trading for 78p, which is a 56% drop over a 12-month period.

I believe McBride shares have fallen due to macroeconomic and geopolitical factors in recent months, but more on that later. These issues have affected performance.

For and against buying the shares

FOR: McBride is an established provider of cleaning products and solutions. This is in a time when the pandemic has created a new focus on hygiene. Currently, there are no signs of the pandemic ever fully disappearing. This means sales of cleaning and hygiene products should continue to increase, in my opinion.

AGAINST: Soaring inflation has led to a rise in costs of raw materials. The supply chain crisis has also affected many businesses. McBride is no different. All these factors have affected the balance sheet. There is no telling if this is a permanent change to the economy in terms of cost of materials and supply chain disruptions.

FOR: McBride has a consistent and long track record of performance. A penny stock with extensive trading information is not a common thing. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that it has reported consistent revenue for the past four years, close to £700m. Coming up to date, a half-year report released at the end of February reported inflationary pressures but I prefer to focus on the steps management took to combat these issues. McBride is undergoing a new pricing strategy that will help boost the bottom line as well as a cost saving initiative. The results of these initiatives will become clearer in the full-year results.

AGAINST: The other issue I have is that McBride may need to increase prices to continue its profitability and growth. Despite the macroeconomic outlook, raising prices can affect relationships and McBride may lose customers due to this. This would have a real impact on the bottom line and any returns I would hope to make.

A penny stock I’d buy

I do believe McBride is a good stock for longer-term recovery despite current pressures. The shares look cheap, on a price-to-earnings ratio of close to 3. Industry peers are predominantly operating on a ratio of close to 10.

I would be willing to add a small number of McBride shares to my holdings. I’d hold on to them for the long term, which is my investing mantra. I would expect to see growth in the longer term.

The post Here’s 1 dirt-cheap penny stock recovery play appeared first on The Motley Fool UK.

Cleaning giant

McBride is a leading European manufacturer and supplier of private label and contract manufactured products for the domestic and professional cleaning and hygiene markets. It operates across five divisions. These are liquids, unit dosing, aerosols, powders, and Asia Pacific. It sells over 1bn products a year and supplies its products to 49 out of Europe’s top 50 grocery stores.

Penny stocks are those that trade for less than £1. As I write, McBride shares are trading for 57p. At this time last year, shares were trading for 80p, which is 28% higher than current levels. In the past six month, the shares have fallen over 30%.

I believe the McBride share price dip can be attributed to the ongoing supply chain crisis as well as rising inflation and costs.

Long-term recovery opportunity

Firstly, the pandemic has shone a new light on the need for cleaning products and exemplary hygiene. The virus and the spread of it has encouraged more people to consider their hygiene and cleanliness habits. McBride should benefit from this boosted awareness and demand for its products.

Next, the economic uncertainty that came with the pandemic, such as the market crash, has seen consumers flock towards cheaper alternatives of products. Cheaper does not always necessarily mean inferior quality, particularly in the cleaning sector. McBride’s products are often own label cheaper options compared to premium branded products. 

In addition to demand and McBride’s place in the market, I can see it has a favourable track record of performance. Many investors avoid penny stocks due to lack of history or comparable performance. I must note that past performance is not a guarantee of future performance. For the past four years, between 2018 and 2021, revenue stayed consistently close to the £700m mark. Furthermore, gross profit increased between 2018 and 2020.

Looking at McBride’s most recent update reported last week, it mentions price increases that most of its customers are taking onboard. McBride expects to report a loss for its half-year period, ending December 31 but it reinforces that it has a £80m cash rich balance sheet to help navigate current headwinds.

Penny stocks have risks

The rise in cost of raw materials, especially those needed for cleaning products, is a worry for McBride. As last week’s trading update mentioned, these costs are being passed onto customers. Sometimes this is not well received and can result in a loss of customers or customer confidence. In addition to this, the supply chain crisis could affect operations and performance too.

Overall I expect McBride to recover in the longer term. I believe current macroeconomic issues are short to medium-term issues. McBride’s business model and demand for its products should see its profit rise nicely over time and its share price increase and provide me with a healthy return. I invest for the long term so expect some potential bumps in the road at the moment. At current levels I would add McBride shares to my holdings.

The post Here’s 1 penny stock recovery play! appeared first on The Motley Fool UK.

That said, I like to scan the market for great penny stocks to buy. The reluctance of many to take the plunge with low-cost UK shares like these gives me the chance to root out an overlooked bargain or two.

As someone who invests for the long term, I’m not overly concerned by the possibility of temporary share price volatility. I buy shares that I think will rise in price during a period of years, not days, weeks, or months. I don’t rule out buying a quality share just because it trades below £1. It’s worth remembering that US tech giant Apple once traded inside penny stock territory before sky-rocketing to current levels.

2 cheap UK shares on my radar

With this in mind, here are two penny stocks looking quite unloved. I’d buy them following recent share price falls and aim to hold them for the long term.

Ready to clean up

The McBride (LSE: MCB) share price has tanked 20% in the past six months, meaning it’s just 18% more expensive than it was a year ago. The business makes a broad range of own-branded household products for retailers like supermarkets. And it’s been battered by a sharp rise in input costs of late that have prompted a series of profit warnings. The escalating supply chain crisis means further trouble could be coming down the track.

However, as a patient investor, there’s a lot I like about McBride. I think profits will rise solidly over the long term as rising consumer demand for value boosts sales of cheaper, own-branded products. Furthermore, I think volumes of the penny stock’s cleaning products will rise amid growing awareness over hygiene following the global pandemic. I fully expect its share price to bounce back strongly.

Another unloved penny stock to buy

Concerns over the British economic recovery have dragged Breedon Group (LSE: BREE) lower in recent months. It’s down 10% from its share price three months ago, reducing gains on a 12-month basis to 33%.

The construction materials supplier is highly cyclical. And so it’s no surprise that investors have been selling the penny stock as signs of an economic slowdown have increased. Breedon owns several quarries along with cement plants, ready-mix concrete plants and asphalt plants.

But as a long-term investor, I think Breedon’s profits outlook is compelling. Demand for its products should step up several notches as housebuilding rates in the UK improve. It will also benefit from rising investment to upgrade Britain’s creaking infrastructure.

Like McBride, I think this penny stock could deliver tremendous shareholder returns in the years ahead.

The post 2 unloved penny stocks to buy right now appeared first on The Motley Fool UK.