A lot of investors don’t like to take the plunge with penny stocks. They don’t like the extreme price volatility that low-cost shares like these often experience.
They are also often put off as these cheap shares often have less financial robustness. This can hamper their ability to pursue future growth opportunities and survive any trading troubles.
More fool them, I say! As a long-term investor, I’m not discouraged by the possibility of a little share price turbulence. What’s more, with the right research, it’s possible to find well-funded companies with exceptional profits outlooks. Indeed, here are a couple of top ‘nearly’ penny stocks on my radar right now.
Soaring sales
I’m thinking of bulking up my exposure to the robust housing market by buying shares in Epwin Group (LSE: EPWN). This particular penny stock manufactures PVC doors, windows, cladding, guttering and wide range of other building products. So it is thriving, thanks to buoyant housebuilding rates and a healthy repair, maintenance and construction market (RMI).
Conditions in the RMI sector are particularly bright right now, and this pushed sales at Epwin 69% higher in the six months to June (and 13% higher compared with the same 2019 period). Encouragingly, the business has continued to invest to capitalise on the fertile conditions across its end markets too.
It completed on a new distribution and warehouse facility in the first half, acquired while it also bought plastic building product specialists PBS and SBS earlier in 2021.
City analysts reckon Epwin’s earnings will soar almost 300% this year and by another 23% in 2022. As a result the ‘nearly’ penny stock (which trades at 111p per share) carries a price-to-earnings growth (PEG) ratio of 0.5 for next year. I think Epwin’s a great buy despite the more immediate threat of rising component prices to its cost base.
Another great way to ride the construction boom
Keeping the building materials theme going, Michelmersh Brick Holdings (LSE: MBH) is a stock I expect to thrive during the housebuilding revolution. I own shares in its brickmaking counterpart Ibstock to make money from this construction boom. And I’m thinking of snapping up this industry giant too at current prices of 130p.
City researchers reckon earnings here will rise an extra 9% in 2022 following the 52% jump anticipated for this year. Consequently, Michelmersh changes hands on an undemanding forward price-to-earnings (P/E) ratio of 14.5 times, at current prices. I think this is particularly good value given that, according to fresh trading numbers this week, trading here continues to surpass expectations.
I’m expecting demand for new houses to continue rocketing, thanks to the enduring blend of lower-than-usual interest rates, generous government support for first-time buyers, and intense competition among mortgage lenders. So does the government, which plans to build 300,000 new homes a year by 2025.
I’d buy Michelmersh even though extreme labour shortages could hit housing construction rates and subsequently dampen demand for the company’s bricks.
