Image source: Getty Images
Although penny stocks carry risks, I find some more attractive than others.
Two options I'm looking to buy and hold for as long as possible the next time I have cash to invest are Metal exploration (LSE: MET), and Michelmersh Brick Holdings (LSE:MBH).
This is why!
As the name suggests, the company seeks to identify and extract precious metals. Its operations are in the Philippines.
The company has seen its shares soar in the last 12 months, up 160%. This time last year the shares were trading for just under 2p and now they are trading for just under 5p.
It's worth noting that small-cap stocks can fluctuate up and down quickly. In some cases, their respective gains or losses can seem gigantic, compared to more established stocks.
From a bullish perspective, the company recently announced a new share purchase agreement. The agreement gives it control of the gold-rich Philippine Cordillera area. Mining is expected to begin in the second half of this year. Investor sentiment has continued to rise since the news broke in January. This additional revenue stream could boost the fledgling business.
Based on current financials, the stock also appears to be good value for money, with a forward price-to-earnings ratio of just over two.
Moving on to the bearish case, my biggest concern is geopolitical instability in the region, which could harm operations and production. Also, the huge amount of debt that the company is trying hard to pay off. Both aspects are credible threats to performance, growth and potential returns.
Overall, based on current valuation as well as recent events, Metals stock strikes me as an interesting opportunity.
Michelmersh Brick Holdings
Like Metals Exploration, Michelmersh's name gives the game away. The company manufactures bricks, tiles and other building materials at its own landfill in Telford, UK.
The shares are up 6% in a 12-month period, from 93p this time last year to current levels of 99p.
The growth potential of the company is what excites me the most. This is related to a couple of factors. Firstly, the housing imbalance in the UK means that a lot of bricks, tiles and building materials will be needed. This could be a long-term boost to the company's performance. Related to this, the growth of infrastructure needed for the UK's growing population could also be a potential source of money generation.
Currently, a dividend yield of 4.5% is attractive. However, it should be noted that dividends are never guaranteed. Additionally, the stock appears to be good value for money with a price-to-earnings ratio of just over nine.
The obvious risks involve continued macroeconomic turbulence. As the housing market, tied to higher interest rates and mortgages, has struggled, demand for bricks has cooled. If this continues for some time, there could be performance issues, as well as profitability being affected.
Overall, the demand for bricks and Michelmersh's access to various end markets make this a no-brainer for me. The opportunity to earn passive income, as well as an attractive valuation, help my investment case.
