Whenever I search for potential penny stocks to buy, one small pharmaceutical firm keeps popping up.
It’s Poolbeg Pharma (LSE: POLB), and it has a novel research model that’s light on cash, and offers the potential to develop multiple product lines at lower costs than traditional methods.
There’s artificial intelligence (AI) in there, and I find that both exciting and cause for concern. The potential for AI is huge, but any stock that merely mentions it seems to get a boost.
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Poolbeg shares have been climbing since late 2022. But we’re still looking at a market cap of only £62m.
There’s no sign of profit yet, and that has to be the biggest risk. But when I look at a company with promising technology and that is valued so lowly, I see the cost of a takeover at just pocket money for a big pharma giant.
Even in terms of specific research products, the company talks about possible sales of the whole production at an early stage.
If I went for Poolbeg, it might be in the hope of a future buyout from a big company… and it would only be with a small amount of cash.
Lithium please
The Kodal Minerals (LSE: KOD) share price is only 0.44p. But it was as low as 0.27p in February, so that’s a gain of more than 60% already.
To be fair, it did briefly peak at nearly a full penny in early 2023. But that’s when a lithium stock boom was on, and it’s well down since then.
With a market cap of £89m, Kodal isn’t far under the usual limit for UK penny stocks of £100m.
The main risk is the lack of current profits. But analysts are tentatively forecasting modest positive earnings by 2026.
After its recent funding round, Kodal reported £11.2m in cash on the books. So its lithium development plans don’t seem to be under any financial threat right now.
Still, until we see profit, and know the extent of any shareholder dilution before we get there, there’s still a fair bit of risk.
Not a penny stock
I’m going to cheat now, and make a third pick. This one, Michelmersh Brick Holdings (LSE: MBH), is not quite a penny stock any more at 105p. But it was less than £1 very recently, and the market cap is still below the £100m mark.
For me, the investment case here is straightforward. We have profits, with forecast rising earnings. And there’s a forward dividend yield of 4.3%, expected to grow to 4.7% by 2027.
And that’s from a small-cap company with price-to-earnings (P/E) multiples that look set to drop below 10.
With its last FY results, the firm spoke of maintaining a well-balanced forward order book, after a decline in the market, and remaining resilient as it awaits new growth.
A lot depends on a UK property market and housebuilding recovery. And that could take longer than bullish investors like me might think. But it’s another possible long-term buy for me.
