3 cheap penny stocks I’d buy before the ISA deadline

These unloved penny stocks could be ideal ISA buys, says Roland Head. He’s hunting for cheap shares to buy before the end of the tax year.

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There are just a few days left until this year’s ISA deadline on 5 April. I’ve been hunting for unloved penny stocks to buy for my Stocks and Shares ISA before the end of the tax year. Here’s what I’ve found.

Profits could double in two years

My first penny stock is corporate currency exchange specialist Argentex Group (LSE: AGFX). This AIM-listed stock only came to market in 2019 and its performance has been a little inconsistent.

However, the latest accounts suggest a strong return to growth. Pre-tax profit rose by 22% to £3.3m during the six months to 30 September, while the currency value handled by Argentex rose by 67% to £8.3bn.

One downside to this business is that it’s a competitive sector, and it’s hard for outside investors to get much visibility on future profits.

However, Argentex has an operating margin of nearly 30% and is generating plenty of surplus cash. Analysts expect profits to double from £6m in 2021 to £12m in 2023.

Another attraction for me is that CEO Harry Adams owns 12% of the shares, so has plenty of skin in the game. I also think Argentex looks cheap on eight times forecast earnings, so this penny stock is on the buylist for my portfolio.

A fashion comeback?

Sales have doubled at fashion retailer Joules Group (LSE: JOUL) since the company listed on the London market in 2016. Unfortunately, the group’s profits slumped last year after the business was hit by cost increases relating to wages, warehousing and transport.

Joules’ share price has fallen by 75% over the last 12 months. The big risk is that Joules won’t be able to rebuild its profit margins, but this sell-off seems harsh to me.

Unlike some struggling retailers, Joules’ sales have kept on growing. Revenue for the half-year to 28 November rose 35% to £128m. This tells me that demand for Joules’ products is still strong.

I think CEO Nick Jones should be able to get costs under control. If I’m right, then profits could bounce back quickly. Broker forecasts put Joules on a forecast P/E of eight for 2022/23. I’d buy this turnaround stock for my portfolio at this level.

A penny stock for cake lovers

My final share is one I already own. Bread and cake producer Finsbury Food Group (LSE: FIF) makes a wide range of fresh products stocked by supermarkets in the UK and parts of Europe.

Finsbury’s share price has fallen by more than 30% since then end of 2021. That’s left the stock trading on a potential bargain rating of just six times forecast earnings.

Although management admits the company is facing pressure from rising food, energy and wage costs, Finsbury has a decent track record of managing these issues.

Finsbury’s sales rose 9% to a record £166.5m during the first half of this year. Although adjusted earnings fell 18% to 3.6p per share, City analysts expect full-year earnings to be unchanged from last year at 9.1p per share.

I think there’s scope for Finsbury shares to re-rate quite quickly, especially if price pressures ease. I’m continuing to hold this penny stock in my ISA as we enter the new tax year.

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.

Roland Head owns Finsbury Food Group. The Motley Fool UK has recommended Joules Group. 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.

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