Penny stocks can be incredibly risky investments. However, they can also produce significant returns. This is why I own a selection of these companies in my portfolio.
I want to have some exposure to penny stocks for their growth potential, but I also want to limit my risk. Owning a handful of different penny stocks can help me accomplish both aims.
With that in mind, here are some of the best shares to buy now, which I’d acquire today.
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Penny stocks on offer
The first company I’d buy is the leading European manufacturer and supplier of cleaning products, McBride (LSE: MCB).
After a bumper 2020, rising material costs have brought this business sharply back to earth in 2021. In a recent trading update, management warned pre-tax profit in the company’s current financial year could decline by as much as 65%.
This isn’t very reassuring. But I believe this is one of the best shares to buy now, considering its growth potential. If McBride can pass rising costs onto customers, this year’s setback should be easy to overcome. Management can then focus on returning the group to growth and its long-term expansion strategy.
There’s a risk this won’t happen. In that situation, the company will have to absorb higher materials costs, and it may not recover from the setback. That’s something I’ll be keeping an eye on.
Best shares to buy now
McBride’s recent problems show the challenges of investing in penny stocks. One way to get around this is to buy a trust that invests in other small businesses to increase diversification.
One such trust that’s also a penny stock is the Schroder UK Public Private Trust (LSE: SUPP). Currently trading at a discount of around 20% net asset value, the trust owns a portfolio of public and private companies. It recently invested £10m into the challenger bank Revolut as part of a large fundraising by the institution.
I’d buy this trust as it provides an excellent way to gain exposure to many small corporations. However, it’s pretty risky, as investing in small businesses is very challenging. There’s also no guarantee the trust will ever produce positive returns if these companies don’t increase value.
Still, it does have some record of success. Earlier this year, the fund sold its stake in therapeutic antibody company Kymab to Sanofi for $82m.
Renewable energy
The final company I’d buy is the engineering group Lamprell (LSE: LAM).
This former oil & gas engineering group is repositioning itself as a renewable energy infrastructure provider. During the first six months of its financial year, its bid pipeline increased 15% to $6.9bn as new opportunities in the sector emerged. Renewables comprised 50% of the pipeline.
As the group builds on its experience in the sector, I expect new business wins to increase. This could help Lamprell strengthen its balance sheet and grow profitability.
Unfortunately, like all penny stocks, this firm does face significant challenges. The engineering sector is highly cyclical, and a sudden downturn in demand could have a devastating impact on growth. Due to its small size, the company may struggle to compete with larger peers.
