Penny stocks are generally thought of as those with share prices under £1, and market-caps of less than £100m.
They can bring a lot more risk. But if we choose carefully, I reckon we can find ones that can break through the pound barrier — and maybe go a lot further.
Asset management
My first choice is easily the best name of today’s chosen three. It’s Frenkel Topping Group (LSE: FEN), and it doesn’t make things for pizza or cakes.
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No, Frenkel Topping is an independent financial adviser and wealth manager. And its share price has had a bad couple of years. But it’s up 65% in five years.
That’s a good overall performance, considering the way so many investment-related stocks have been under the hammer in recent years.
Broker forecasts look good, with earnings growth on the cards. If they’re right, we’d see the stock’s price-to-earnings (P/E) ratio dropping to about 10 by 2025.
There’s a modest dividend too, with a yield approaching 3%. That’s not the biggest, but it looks like it’s growing.
I think the big risk is that high interest rates could drive investors away from the firm’s services.
But I could see decent long-term growth here.
Bricks
My second pick is something simpler, Michelmersh Brick Holdings (LSE: MBH). It makes bricks, as the name suggests, and tiles and things like that.
The share price has had a surprisingly rocky five years, up 7%. But since the house building market started to decline, it’s fallen.
We had a trading update on 23 November, which speaks of a resilient performance, so far.
Solid earnings forecast for the next couple of years would give us a P/E of 8.7, dropping to 8.3 by 2025. And there’s a dividend yield of more than 5%.
The dividend was cut in the pandemic, but it’s already back above pre-2019 levels.
An extended period of high mortgage rates could keep the pressure on the construction business. And that would surely have a knock-on effect on demand for Michelmersh’s products.
But for those with a positive view of housebuilding for the long term, I think this could be a great choice right now.
Investment trust
I like CT UK High Income Trust (LSE: CHI), for diversification. The share price is down 12% in five years, as funds available for investing have taken a hit since inflation and interest rates started to soar.
The trust invests mostly in UK stocks and doesn’t have a wide range of holdings. It couldn’t really, with a market-cap of just £90m.
But it does hold stocks like Shell, British American Tobacco, AstraZeneca and Vistry Group. I rate those all as good value.
It faces the same risks as those individual stocks. And perhaps more so, as I suspect investors are more likely to go for bigger investment trusts when things look brighter.
But we’re looking at a dividend yield of 6.8% here. And the shares are on a discount of 6% to net asset value.
