2 under-the-radar penny stocks I think have big potential

Jon Smith writes about two penny stocks that have caught his eye in the property space. He thinks they could offer him future profits.

| 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.

Stacks of coins

Image source: Getty Images

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.

When identifying a penny stock, people have different definitions. However, I’d call a business a penny stock if the market capitalisation is £100m or less, with the share price trading for under £1. These are clearly smaller companies. In this regard, there’s sometimes the potential for large share price gains, given the scope for company growth. Here are two that I don’t think are getting enough attention.

A property penny stock

The first firm I’m considering buying shares in is Foxtons (LSE:FOXT). The estate agent has a market cap bang on £100m, with a share price of 32p. Over the past year, the stock is down 27%.

When I think of property-related stocks, I often go to Rightmove. Or I consider buying a traditional homebuilder, with several options available to me in the FTSE 100. Yet my radar never really picks up on alternatives such as Foxtons.

The company has a natural correlation to the fate of the property sector. This is one of the reasons why the share price is down in 2022, given the fact that higher interest rates and slowing growth puts pressure on property prices and mortgages.

However, I think the stock is good value at current prices. The Q3 results showed that revenue for that period was up 25% on the same quarter last year. The company is seeing strong demand in the lettings side of the group. This makes sense. Even if people can’t afford to buy, they still have to rent and live somewhere.

I admit that the focus around central London property could be more of a risk than a benefit. Yet as far as property stocks go, the lean operating model is appealing to me. I’ve put it on my December watchlist.

An interesting REIT to consider

The second option I like is Capital and Regional (LSE:CAL). With a share price of 53.5p and a market cap of £89m, it fits the penny stock tag.

The business is a real estate investment trust (REIT) that focuses on UK retail and leisure opportunities. It has a portfolio worth around half a billion pounds, mostly in community shopping centres. By picking up rent and leasing payments, the business can generate an income that gets paid out to investors via the dividend.

The share price has dropped by 15% over the past year. A large part of this was due to the halting of the dividend payment due to the business posting a loss as it came through the pandemic. However, I think now is a good time to buy the stock.

In the half-year results from late summer, adjusted profit jumped 87% to £5.8m from the same period in 2021. With stronger occupancy and rent collection, I think the REIT could be a good addition to my portfolio.

I’m adding both penny stocks to my watchlist for December, to consider buying when I have free cash.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »