I’m searching for the best low-cost stocks to buy for my investment portfolio. I think these two ‘nearly’ penny stocks could deliver excellent earnings growth over the next decade. Each trades just above the penny stock limit of £1.
The Restaurant Group (trades at 102p)
Leisure shares like The Restaurant Group (LSE: RTN) face some significant near-term challenges. Rocketing inflation is putting consumer spending under massive stress. The cost of ingredients and staffing is also rising sharply. The prospect of further coronavirus lockdowns can’t be ruled out either as Covid-19 endures.
As a long-term investor though, there are some good reasons why I’d still buy The Restaurant Group. The business has made huge strides in turning around its flagging chains such as Frankie & Benny’s and Chiquito in recent years. It also owns the massively-popular Wagamama brand, the success of which has been boosted by a positive reception to ongoing expansion of its vegan menus.
I also like The Restaurant Group because of changing priorities among UK consumers. Spending on material goods as a proportion of income has been steadily falling as the ratio on leisure pursuits has been rising. It’s a theme which this ‘almost’ penny stock, with its 400-odd restaurants across the country, is well-placed to exploit.
Everyman Media Group (trades at 127p)
Like The Restaurant Group, I think cinema operator Everyman Media Group (LSE: EMAN) should also benefit from rising leisure spending in the UK. Cinema attendances have bounced back strongly following Covid-19-related theatres closures. And I’m tipping them to continue increasing at an impressive rate, propelled by Hollywood’s conveyor belt of popular sequels, prequels and reboots.
But I wouldn’t invest in Cineworld to capitalise on this huge investment opportunity. I’d rather buy Everyman because of its considerably healthier balance sheet and its more sophisticated offering.
Everyman prides itself on its screening of independent and foreign movies, giving it a wider audience than mainstream operators. Its sites also incorporate bars and restaurants which give it extra ways to part people from their cash on a night out.
Its unique offering is particularly important given the growing popularity of streaming platforms from Netflix, Disney and Amazon. The huge investment these US media giants are dedicating to programming and technology poses a significant threat to cinema operators. Disney alone plans to spend $33bn on content just in 2022.
That said, trading numbers from Everyman give me cause to be optimistic. Business has been so strong at Everyman that last month the business hiked its full-year forecasts for 2021. Revenues more than doubled last year and, equally impressively, total sales came in at 75% of 2019’s record levels.
I think this ‘nearly’ penny stock has a winning formula and am encouraged by its plans to aggressively expand. It wants to have 41 new cinemas open by the end of 2022, five more than its current crop.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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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