3 hot penny stocks I’m buying in May!

Investing in penny stocks can be a great way to grow portfolios over the long term. Here are three companies that I’m buying next month.

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With share prices less than £1, penny stocks can be a great way to accumulate wealth. Having scoured all indices, I think I’ve found three such firms that I will add to my long-term portfolio next month. While investments of this type may carry greater risk, they can also allow growth on a much larger scale than bigger, more established businesses. Why am I buying shares in these companies? Let’s take a closer look.

Penny stock #1: EnQuest

As an oil and gas producer, EnQuest (LSE:ENQ) operates primarily in the North Sea and Malaysia. Currently trading at 36.05p, it is in prime penny stock territory.

Created with Highcharts 11.4.3EnQuest Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Looking at recent results, the company managed to turn a $565m pre-tax loss into a $352m pre-tax profit between 2020 and 2021.

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In addition, the firm’s free cash flow over the same period grew from $210m to around $400m. 

Despite this, production fell from 59,000 barrels of oil per day (bopd) to 44,000 bopd. This is something I would like to see improve in the near future as the oil price continues to be strong.

However, the firm is making efforts to increase output, having recently purchased the Golden Eagle and Bentley fields off the coast of Aberdeen and Shetland, respectively. 

Penny stock #2: dotDigital

A digital marketing and software services business, dotDigital (LSE:DOTD) has a strong financial record. It currently trades at 86.6p.  

Created with Highcharts 11.4.3Dotdigital Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

For the year ended June, between 2017 and 2021, earnings-per-share (EPS) increased from 2.47p to 4.12p. By my calculation, this means the company has a compound annual EPS growth rate of around 10.88%. This is strong and consistent.

What’s more, it recently signed a two-year deal with software security giant Adobe, that will improve the visibility of dotDigital’s products around the world.

For the six months to 31 December 2021, organic growth in revenue increased by 10%. Its leadership, however, lowered growth expectations for 2022 as it forecast a decline in demand after the pandemic. 

Penny stock #3: Eurasia Mining

My final pick is Eurasia Mining (LSE:EUA), a firm specialising in platinum group metals (PGMs), gold, cobalt, nickel and copper. At the present time, it operates solely in Russia. It currently trades at 9.5p. 

Created with Highcharts 11.4.3Eurasia Mining Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It is currently benefiting from higher metal prices as the world recovers from the pandemic and deals with the war in Ukraine.

In addition, there has been significant interest in its metal assets. In February, the business announced that an unnamed buyer was in advanced stages of a deal to purchase “substantially all” of Eurasia Mining’s assets.

The firm has also so far avoided Western sanctions on Russian companies and individuals. Given the uncertainty of the situation, however, I would always factor this big potential risk into my investment decision.

Overall, these are three strong penny stocks. Although they constitute greater investment risk, I think their track records justify adding them to my long-term portfolio. I will be buying shares in all three during May.

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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.

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital 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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