2 penny stocks I’d buy before the market recovers

The long-term outlook is positive for these two penny stocks, thinks Paul Summers.

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As risky as they can sometimes be, penny stocks have the potential to grow my wealth in a way that a FTSE 100 juggernaut might not. The probability of this arguably increases if they are snapped up when markets are in a funk.

With this in mind, here are two shares trading below £1 that I’d be willing to buy while the chips are still down and before markets truly begin rallying.

Coats

Industrial thread company Coats (LSE: COA) doesn’t exactly get the pulse racing but it’s a world leader at what it does. And despite the tough economic times we’re in, business doesn’t appear to be suffering too much either.

Back in May, the company reported a 20% jump in sales growth over the first four months of 2022. Importantly, the company stated that actions taken on pricing and productivity had managed to “offset inflationary pressures in the supply chain“. This has had a knock on effect of supporting margins at both its Apparel & Footwear and Performance Materials divisions. That all sounds encouraging to me and may help to explain why the shares are down just 3% year-to-date.

Like all businesses, Coats is remaining “vigilant of potential macro-economic conditions“. And, yes, there’s always a chance that this baby could get chucked out with the bathwater. That said, I think the shares already look good value with a price-to-earnings (P/E) ratio of 11.

Coats also has PEG (price/earnings-to-growth) ratio of just 0.6. While there can be no guarantees when it comes to investing in anything, this suggests to me I’d be getting a good deal based on the potential growth that lies ahead.

At least some of the later may come from the company’s latest addition. Yesterday, it was announced that Coats will acquire global heel counters and insoles supplier Texon. Earnings accretive from the off, this addition should “deliver attractive high single digit growth in a fragmented market” and strengthen the company’s presence in the footwear/ath-leisure space.

There’s also an extremely secure-looking 2.6% dividend yield for good measure.

Tritax Eurobox

A second penny stock I’d buy today is one I’ve had an eye on for quite some time now. Tritax Eurobox (LSE: BOXE) is the lesser-known sibling of £3.5bn cap, UK-focused Tritax Big Box. Like its bigger brother, the former specialises in developing and managing logistics assets for customers.

Eurobox shares are down over 20% year-to-date, no doubt influenced by concerns of rising inflation and lower spending. The latter means potentially reduced earnings for the company’s clients. However, I suspect this will prove a temporary blip. Simply put, the ongoing migration of consumers online means warehouses of the sort that Eurobox provides will be in growing demand.

One snag with Eurobox shares is that they still look expensive, at least initially. A P/E of almost 24 looks pretty steep considering the economic headwinds. However, the company also has a PEG of just over one. So, again, I might actually be getting a decent amount of bang for my buck.

Being a real estate investment trust (REIT) means there’s a passive income stream on offer too. A yield of 5.5% as I type looks like adequate compensation for being asked to wait for a recovery.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats 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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