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Looking for penny stocks, I keep finding shares that just sit outside the usual strict definition. But I think these deserve a closer look.
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Whenever I review my take on penny stocks, I keep coming back to Michelmersh Brick Holdings (LSE: MBH). It doesn’t quite make the cut now its share price has edged fractionally above the 100p cut-off. But its market cap of £98m is still below the £100m threshold. And that slots it firmly into my near-penny stock category.
Why might investors steer clear of this one? Well, interest rates are still high. And global trade friction could push inflation and keep rates up for longer. And that all puts pressure on building demand.
But against that, forecasts that put the price-to-earnings (P/E) ratio down around 10 by 2027 make it look undervalued to me. Net cash rather than net debt strengthens that feeling. And a forecast 4.4% dividend yield puts a cherry on top.
Even with the sector risk, it has to be a consideration for long-term value investors.
CT UK High Income (LSE: CHI) investment trust is another favourite that’s just above the usual penny share limits. But it’s not too far out with a £119m market-cap. And a share price rise of around 35% in the past five years has pushed it to only a few pennies over a pound.
What does it have that I like? It has Shell, AstraZeneca, NatWest, Legal & General, Imperial Brands… that’s what. They’re all in its top 10 holdings, together with some other FTSE 100 dividend big-hitters.
They contribute to an expected dividend yield of 5.4%. And dividends are paid quarterly, which could make it a more attractive proposition for investors wanting steady income.
Being such a small-cap trust it must be at greater risk of investors pulling out during downturns and sending the price down. And going for something like the much bigger City of London Investment Trust might be a safer alternative. But the diversification should help offset the risk. And I do like that dividend.
Am I pushing things a bit with a share price up around 130p? That’s where specialist medical diagnosis firm Diaceutics (LSE: DXRX) is, and its market-cap’s just about £112m. But that’s due to a 50% rise since early 2024, so it’s close to being a penny stock time-wise. And forecasts mean I really can’t ignore it.
The company’s loss-making right now after a decline following the Covid days. But forecasts suggest profit in the 2025 fiscal year, with a rise in 2026 giving a P/E of under 18.
It’s also in a niche market. And we never know when a big pharma company might muscle in on its business.
But analysts are bullish on the stock with a strong Buy consensus. And their price targets range from 180p to 225p. Even the lower end is around 35% above the current price.
It’s a tiny, high-risk, currently unprofitable, jam-tomorrow growth stock. But the jam might actually not be very far way.
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.
Alan Oscroft has positions in City Of London Investment Trust Plc. The Motley Fool UK has recommended AstraZeneca Plc and Imperial Brands Plc. 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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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. Tax treatment depends on your individual circumstances and may be subject to future change. 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.
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