The stock markets are in a relatively good place right now. The FTSE 100 index is finally back to levels last seen in February 2020. And while the FTSE 250 index is yet to get back to its highs of early September, it is inching up slowly too. When the broader indices are performing well, it clearly indicates that at least some of the constituents are seeing rising share prices too. If this continues, then some companies that trade as penny stocks today, will graduate out of the category.
Penny stock today, but maybe not tomorrow
Consider the example of the FTSE 100 stock Rolls-Royce. The aero-engine manufacturer crashed into the penny stock category as the pandemic started last year and travel-related stocks suffered the worst fortunes. As the vaccine-driven rally started in November last year, it shed the unenviable distinction, only to dip back into it several times in 2021. But since it swung into surprise profits a few months ago, it has not looked back. In fact, it even touched highs of 148p recently.
And that is my point, when I talk of buying penny stocks before it is too late. Stocks are getting back into the game at speed as the broader macro picture evolves quickly around us. And I want to buy these stocks while they still look cheap.
FTSE 250 gold miner with a good dividend yield
One that I’d consider buying is the FTSE 250 gold miner Centamin, which is a heartbeat away from moving out of the penny stock club. As I write, its share price is 97.7p. In any case, it has been at sub-100p levels for less than three months. And in the last month alone its share price has risen some 9%. As inflation continues to rise and the recovery looks weak, demand for gold stocks could rise as a safe alternative investment option.
And Centamin has a pretty sweet dividend yield of over 5% as well. This is good in itself, but even better considering that it is an inflation-beating one, an important consideration for me right now. Of course the flip-side is that its share price could stay weak over time, resulting in limited capital gains, but it is still one for me to consider.
A recovery stock to bet on
Another penny stock I like is Cineworld. Its share price is 62p, which appears far from 100p. But I reckon it is closer than it appears. It was trading above 100p as recently as April this year. And it rose to these levels following last November’s stock market rally fairly quickly. It took only five months for it to more than triple its value.
More recently, audience enthusiasm for the latest James Bond flick sent its share price soaring before settling at lower levels. I reckon as more blockbusters hit the cinemas over the next few months and its revenues start looking better, its share price will start rising in anticipation of even better times ahead.
As in the case of Centamin, the reverse can also happen. The recovery may be slow, there may just not be enough big films around, and the turnaround in Cineworld’s financial fortunes may take a long time. But I am among the minority who still like the stock, and have bought it.
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Manika Premsingh owns shares of Cineworld Group. 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.
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