I’d invest £5k in these AIM penny stocks

This Fool takes a look at two AIM penny stocks he’d buy to invest in the UK economic recovery over the next few years.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Some investors might avoid AIM penny stocks because they can seem riskier than blue-chip stocks. However, that’s not always the case. Some AIM companies have multi-billion pound valuations, which puts them in the ranks of the UK’s biggest listed businesses. 

I’m perfectly comfortable investing in AIM penny stocks, and I think there are some great bargains on the market right now. As such, here are two companies I’d buy with an investment of £5k today. 

AIM penny stocks to buy 

The first stock I’d acquire is a recovery play. HSS Hire (LSE: HSS) provides tool and equipment hire and related services.

Usually, the construction market is the first section of the economy to feel the pain in an economic downturn. It was troubled last year, but the sector has quickly recovered. It would also appear as if there is pent-up demand in the market, as prices are rising.

This growth implies HSS is a recovery stock. The company nearly collapsed in 2016/17, and it has been working flat out to return to growth ever since.

The group lost money last year, but management has already reported strong trading for 2021. Earnings before interest tax depreciation and amortisation (EBITDA) in the first few months of the year were ahead of the same periods in 2020 and 2019. 

This stock is not going to be suitable for all investors. It’s a high-risk investment, that’s for sure. Another coronavirus wave could send shocks through the UK construction market. This would hit HSS more than most, considering the company’s fragile state. 

Still, despite this risk, I think the company has recovery potential. That’s why I would invest £5,000 in the business as part of my portfolio of AIM penny stocks. 

Cheap growth 

The other company I’d buy for my portfolio is Vertu Motors (LSE: VTU). 

Once again, this business had a rough 2020, but earnings are projected to rebound this year. For the year ended 28 February 2021, Vertu reported a like-for-like revenue decline of 21.6%. However, in the first two months of the new financial year, the group reported “trading profits at a record level“.

Based on this performance, management is forecasting adjusted profit before tax for the year ending 28 February 2022 in the range of £24m to £28m. That’s compared to £24.6m last year. 

These are just projections at this stage. As is the case with all businesses right now, uncertainty prevails. Another wave of coronavirus could force management to revisit their forecasts and revise targets lower. Moreover, if the economic recovery stutters, consumer confidence may collapse, which would almost certainly reduce the demand for new and second-hand vehicles. 

These risks and challenges are concerning, but I believe Vertu is one of the best AIM penny stocks to buy now, considering its growth potential and current valuation. The stock is trading at a forward price-to-earnings (P/E) multiple of 8.2, which looks far too cheap for me, although it does not necessarily mean this will be a good investment. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Vertu Motors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is now the time to buy BP shares? Here’s what the charts say

The best time to buy shares in a company is when they’re trading at a discount. But the future is…

Read more »

Investing Articles

Here’s how I’d use £50K to aim for a million when the stock market crashes

Seeing a stock market crash as a buying opportunity could prove lucrative for a well-prepared, long-term investor. Christopher Ruane explains…

Read more »

Stack of one pound coins falling over
Investing Articles

It’s up 27% with a P/E of 9! I’m considering the potential of this blossoming penny stock

Despite several years of losses, this UK penny stock has an impressive valuation. I’m looking to see if it could…

Read more »

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »