1 penny stock to buy now

Premier African Minerals raised £1m this month to fund its mining exploration in Zimbabwe. Charles Archer thinks this penny stock could be a great growth opportunity.

| 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.

Penny stocks offer an interesting investment opportunity. There’s often confusion among newer investors on what exactly constitutes a penny stock. This is often because the definitions are different in the UK and the US, and most investors buy shares in both markets to diversify their risk.

In the UK, penny stocks are shares that cost less than one pound and which have market caps of under £100m. They are generally listed on the FTSE Alternative Investment Market (AIM). In the US, they are shares that cost less than $5 with a market cap of less than $300m.

Penny stock success

The small scale nature of penny stocks mean that they are generally fairly risky. One of their hallmarks is that the company issuing them often hasn’t yet fully developed their product or service, and consequently are unlikely to be generating much profit or revenue.

Of course, the advantage is that they have plenty of room for growth – and sometimes, this can be explosive. It’s also worth remembering that many blue chip stocks started out as penny stocks.

Famous examples include Apple (NASDAQ: AAPL), which traded under a dollar a share in 2003, and is now the most valuable company in the world. Its market cap of $2.5trn is worth more than the entire UK FTSE 100. Or Amazon (NASDAW: AMZN), which initially traded for two dollars a share in 1997. Its current share price is $3,421. 

A more recent example is Workhorse Group (NASDAQ: WKHS), which was under a dollar a share in mid-2019, and now trades at $9 two years later.

Penny stock potential

Premier African Minerals (LSE: PREM) is a mining company that is developing operations all over Africa. It owns 49% of the RHA Tungsten mine, and has interests in the Otjozondu Manganese Mining Project in Namibia, and the Danakil Potash Project in Ethiopia. 

The company has a solid track record in creating wealth from mining exploration; board member Stephen Dattels was a co-founder of UraMin, a uranium miner that sold for $2.5bn in 2007.

The penny stock recently won a three-year exclusive prospecting order (EPO) in Zimbabwe over the Zulu lithium claims. Premier African Minerals believes these claims could constitute the largest undeveloped lithium mine in Zimbabwe. CEO George Roach said that “our exploration teams are appointed, airborne geophysics and other remote sensing has been commissioned, and we have high expectations for lithium, caesium and tantalum pegmatite discovery.” 

Two weeks ago, it announced that it would reduce funding to the RHA mine to concentrate on the Zulu project, and issued 500m new shares at 0.20p each. The miner said that it planned to use the £1m raised on developing the new operation. The company estimates initial returns of between $207m and $377m. Roach commented that the company is “well positioned to ride this wave of interest.” 

At 0.18p today, I think its share price could rise sharply if the Zulu project takes off. But there’s no guarantee that it will. Mining exploration is fraught with setbacks and risk. Long-term profitability is a long way off.

Its share price hit an all time low of 0.02p four years ago, and this could happen again. However, based on my personal cost-benefit analysis, it’s a penny stock I’d buy today.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Archer owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon and Apple. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. 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

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »