2 Penny Stocks to Consider Buying While They’re Still Cheap

I’ve noticed a few penny stocks recently that have broken through the 100p level and are no longer cheap. But there are still a few with decent growth potential, and I think these two are worth looking at in more detail.

UK trade and manufacturing hit a wall in 2018, with smaller manufacturing firms bearing the brunt of the crisis. The combined effects of Covid and Brexit have not helped, with many businesses failing under the weight of the onslaught. But those that survived are now well placed to take the lion’s share of the burden as the economic recovery brings new demand.

Mincon Group

When looking at small manufacturing companies with growth potential, one promising mining-related stock always emerges.

Mincon Group(LSE: MCON) is a little-known rock drilling company based in Ireland, with 604 employees and a market capitalisation of £93m. For almost 50 years, it has been manufacturing all manner of drilling products for miners, excavators and anyone else who wants to drill holes in the ground.

It’s a simple, non-technical activity that probably hasn’t changed much in the last five decades, so it’s unlikely to be the next Nvidia — but it has enjoyed periods of significant growth in the past. In 2018, the share price reached 153p, but plunged shortly after and has had mixed results since.

Despite a steady increase in equity over the past decade, the stock price is at an all-time low. But it is in a buoyant industry and, relative to earnings, it is “cheap.” With a price-to-earnings (P/E) ratio of just 14, it is well below the industry average. An improving economy could boost sales, which would allow the company to get closer to the rest of the industry.

Sure, profit margins are half what they were last year, but earnings are expected to grow 20% a year going forward. And with minimal debt and a 4% dividend yield, the old lady could still have some life left. I think there’s good potential in low-priced stocks.

Trifast

Trifast(LSE: TRI) is a £97m UK-based company that manufactures industrial fasteners and C-grade components, mainly nuts and bolts. Like Mincon, it is a simple business that has been around since the 1970s and has changed little in its operations.

The story continues

Falling revenues have recently led to a decline in the company’s profits, with the share price down 67% over the last five years. But with a low price-to-sales (P/S) ratio of 0.4, the company now has plenty of room for growth. Last year, it made £241 million in sales and its revenue grew by 9.1%, prompting analysts to predict a 50% price increase for the year ahead. And with profits expected to grow by 103% per year, things are certainly looking good.

But first it needs to get out of its current hole. Despite a dividend of 2p per share, its earnings per share (EPS) are currently down 2.8p per share. It will need to improve its performance if it hopes to maintain this level. Interim CEO Scott Mac Meekin intends to do just that. “Create an aligned leadership team with the skills and capabilities, visions and motivation to maximize another 50 years of success.”

Given that the vast majority of industrial manufacturing operations still require nuts and bolts, I expect demand to increase as the economy improves. And with improving revenue and cash flow, Trifast may already be on the road to recovery.

The article 2 Penny Stocks to Consider Buying While Their Prices Are Still Cheap appeared first on The Motley Fool UK.

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Mark Hartley has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and 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 broad range of ideas makes us better investors.

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