Share prices tend to only get below the magic 100p level when something has gone wrong. But I reckon a lot of penny stocks are oversold, and there are a good few bargains to be had right now.
Lloyds Banking Group shares are selling for way less than 100p. The price has even fallen back below 50p again, after edging above it this week. The Bank of England’s decision to keep interest rates unchanged didn’t help. A rate rise was widely expected to give the banks a boost.
I’ve already looked at the things that I think could help the Lloyds share price. And it has gained around 80% over the past 12 months. The downside I see is that our economic outlook is still very uncertain, with inflation expected to peak around 5% early next year. But I remain bullish, and I continue to hold this FTSE 100 penny share.
Risky penny stocks?
You might think I’m mad with my next pick. It’s UK Commercial Property REIT, trading at around 76p. A real estate investment trust that invests in commercial property, at a time like this? Well, investing in penny shares is usually a contrarian approach, going against the market that has marked them down.
There are downsides, with the retail sector still below strength. And the trust does invest in shopping centres and stores. But it also has exposure to office buildings, and industrial and warehouse premises. The shares have gained only a modest 8.4% over the past 12 months and are still down 12% in two years. It’s probably only for those who can handle a bit of risk, but I have it on my penny stocks list.
Clean energy
The green energy sector offers some interesting penny stocks. Among them, AFC Energy is trading at 64p as I write. AFC develops alkaline fuel cell systems, which use hydrogen. As an alternative to battery storage, they offer high electrical and cost efficiency. The share price is up more than 250% over the past 12 months.
The big risk I see is that it’s hard to tell who will be successful at this early stage. AFC isn’t yet profitable, so that’s an extra risk. But it does seem to be attracting a lot of partnership interest. And it seems to have enough cash, for now.
Two on the sidelines
These are three very different penny stocks, and I’m considering all of them. There are two more that I think deserve an honourable mention, even if I’ll stay away from them for now.
Cineworld‘s 61p share price represents a 12-month gain of 120%. But it’s still down 73% over the past two years. Is there a good pandemic recovery still to come? I can’t make up my mind until I see what the cinema business looks like when we get back to economic normality.
Outsourcing firm Capita‘s shares are priced at 46p. That’s a 12-month gain of 85%, but the shares are still down 70% over two years. Oh, and they’ve fallen around 85% over five years. The industry has faced long-term difficulties, with a few firms even going bust. But I’ll watch this one heading into the new year, looking for signs of recovery.
Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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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