Penny shares are well known for their volatility. These are usually smaller companies that trade in low volumes, making them ideal candidates to surge (or to plunge) when investor sentiment changes.
Small-cap shares like these have fallen as worries over the global economy have mounted. High inflation and interest rate rises put their growth forecasts in danger. Their balance sheets compared with larger-cap companies also leave them more vulnerable to collapse.
But I believe recent share price falls make many penny stocks great dip buys. Here are three I’m looking to buy when I have extra cash to invest.
Chaarat Gold
Buying gold miners can be a great way to capitalise on strong bullion prices. This is because news of strong operational performance can give investor returns an additional boost.
Chaarat Gold Holdings is one such business on my radar today. It operates the Kapan mine in Armenia and has a strong recent history of beating production guidance. It’s also developing the low-cost Kyzyltash project in Kyrgyzstan, which could produce up to 300,000 ounces of gold a year.
Gold price volatility could have a significant impact upon profits here. But I believe yellow metal prices are set to break records as macroeconomic and geopolitical risks mount, driving demand for the safe-haven asset.
Atlantic Lithium
Demand for lithium — a critical material in the manufacture of batteries — looks set to rocket. This is thanks to electric vehicle and energy storage markets that are tipped to balloon over the next decade.
Buying Atlantic Lithium shares could be a good way to harness this opportunity. The company is developing the Ewooya project in Ghana, an asset that contains 3.6m tonnes of the lithium-aluminium silicate mineral spodumene. Recent studies show that Ewooya has a 12-year mine life.
Atlantic is hoping to get production rolling at the asset during the second quarter of 2025. Mine development problems are a danger that could yank the company’s share price lower. But I still find the risk-reward story here here very attractive.
Michelmersh
Okay, building materials supplier Michelmersh Brick Holdings (LSE: MBH) hasn’t slipped in value like those other penny shares. But I still think it’s too cheap to miss despite recent price gains.
The company trades on a forward price-to-earnings (P/E) ratio of 9.5 times. It also carries a healthy 4.4% dividend yield.
We’re in the middle of a housing market downturn. So housebuilders are scaling back production as they seek to ride out the storm. But trading at Michelmersh has remained strong and it enjoyed “resilient order intake” in the six weeks to 18 May, it recently announced.
I expect sales of its bricks to rise strongly over the next decade. UK housebuilding rates are likely to rise strongly from current levels. And Britain’s ageing housing stock — already the oldest in Europe — will need constant upgrading.
