5 penny stocks to buy today

This Fool highlights the five penny stocks he’d buy today to profit from the UK economic reopening over the next few quarters.

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.

happy senior couple using a laptop in their living room to look at their financial budgets

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.

Investing in penny stocks isn’t for the faint-hearted. While these companies can generate significantly higher returns than blue-chips, they also come with more risk.

The simple fact of the matter is that smaller companies have fewer checks and balances to stop problems from arising. As such, these companies may not be suitable for all investors.

However, I’m comfortable with the risks involved in investing in small businesses. Therefore, I’ve been looking for penny stocks to add to my portfolio to profit from the UK economic recovery.

Penny stocks I would buy

The first company on my list is Smiths News. The newspaper and magazine delivery business reported a resilient performance in 2020, despite the challenging environment. Revenues declined by just 12%. Thanks to this performance, the company’s balance sheet ended the year in a relatively strong position, with net debt falling 31%.

As the UK economy continues to reopen, I think the company’s fortunes may improve. That’s why I’d buy the business for my portfolio of penny stocks.

However, its most prominent risk is debt. Despite the reduction in debt last year, it still stands at five times earnings before interest, tax, depreciation and amortization (EBITDA). That’s quite high for my liking.

Two other recovery plays I’d buy for my portfolio of penny stocks are Speedy Hire and SIG. Both of these are construction sector firms. The former deals with equipment hire, and the latter sells materials. As the UK construction market rebounds, I think both may see rising profits and sales. That’s the reason why I’d buy these two penny stocks as recovery plays.

However, if the recovery starts to stutter, they may struggle. That’s the most considerable risk both companies face right now. But, unfortunately, they have almost no control over this headwind.

Booming market

The UK property market is currently booming. As such, I’d also buy Foxtons for my portfolio. The estate agency group has performed better than management’s expectations over the past few months. This has allowed the business to resume cash returns. I think this trend could continue as transaction volumes remain elevated.

Finally, I’d buy Severfield for my portfolio of recovery penny stocks. As one of the UK’s largest steel companies, Severfield should benefit from any economic recovery. At the same time, steel demand may only increase as the government pushes ahead with its £100bn infrastructure plan. I think these two tailwinds could drive the company’s sales and profits higher as we advance.

Unfortunately, the company could also face headwinds in the form of higher commodity costs. In addition, Severfield’s costs may also increase if it has to pay more to offset the carbon produced by its steel operations. Both of these factors could hold back growth and offset the tailwinds outlined above.

Nevertheless, I believe this company could be an excellent addition to my portfolio of penny stocks for its recovery potential.

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »