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Penny stocks may be a great option to add to my portfolio. While I would never keep all my money in a few small-cap stocks, owning a few allows me to diversify my holdings. It also gives me the potential to achieve some high returns that a large-cap stock would struggle to deliver, given the size.
With the new year for Stocks and Stocks ISA starting next week, here are some early contenders for you to consider including.
Record revenue on the books
Topps Tiles (LSE:TPT) is a well-known tile retailer in the UK. With a market capitalization of £91m and a share price of 47p, it qualifies for a penny share. Over the past year, the stock price has fallen 15%.
The business has dealt with some problems in the last 12 months. This included a fairly public dispute with a large shareholder, MS Galleon. Topps Tiles urged others to vote against the plan to oust the current chairman, saying MS Galleon had a conflict of interest in the potential launch of a rival tile brand.
High inflation has also caused a headwind for the company, but the 2022 annual report showed how cost savings and store reductions have paid off to keep costs in check.
In fact, last year was the second consecutive record year for revenue in the business. Adjusted profit before tax increased 4% on last year to £15.6m. If you have another record year in 2023, I think it’s only a matter of time before people start to take notice and buy the stock, driving it much higher.
Also, I think he has all the makings of being a good defensive value. This could come in handy if the UK economy deteriorates later this year.
Invest in Great Britain
Northern Venture Trust (LSE:NVT) is a very interesting stock that has caught my attention. The trust invests primarily in UK private manufacturing, service and technology companies.
It focuses on screening companies based on growth potential, strong management, and cash generation.
The trust currently has a market capitalization of £95m and a share price of 56p. The stock has fallen in value by 11.5% over the past year. In the annual report, this drop was mainly attributed to the lower value of technology stocks held in the trust.
I recognize that this is a high risk penny stock. This small-cap investor invests in other small-cap stocks! However, I think the UK economy will be in a recovery phase over the next year, followed by a growth cycle. To this end, buying now makes sense to try to make big profits for years to come.
Aside from the pure capital gains, I benefit from the generous dividend yield. Currently, this stands at 6.96%.
I am considering adding both stocks to my ISA when I have some free cash. However, I will only invest a small amount, given the risk involved.
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