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The recent stock market crashes feel uncomfortable right now. But they can provide great buying opportunities for savvy investors in the long run. Today, I’m looking at two penny stocks that I think should do well when sunnier times return.
Foxtons is ready for recovery
Real-estate agency foxtons (LSE: FOXT) is a key player in the London property market. However, this business has been on a rough patch in recent years and has not performed as well as expected.
Its share price has fallen by more than 80% since it went public in 2013. But last year’s results showed a welcome increase in earnings and I think the group is well positioned for a solid turnaround.
One important change is that the company has increased its exposure to the rental market, which now generates 65% of revenue. The importance of this is that the rentals are generally recurring and not cyclical.
Although the initial fees available from home sales may be higher, this sector of the market is highly cyclical. As we have seen over the past year, the housing market can slow down dramatically from time to time.
Foxtons also has a new CEO. Guy Gittins has returned to the business where he began his career 20 years ago. A highly experienced London estate agent, he is determined to rebuild the brand and invest in growth.
I think it could be a sensible buy at current levels, on a medium-term outlook.
A market leading business
My next choice is the boiler control manufacturer Strix (LSE: KETL). This little-known business is the world’s largest producer of kettle safety controls, the part that causes the kettle to shut off when it boils.
It has a market share of around 50% for these parts. This reflects its trusted relationships with many manufacturers. The only problem with this is that it doesn’t leave much opportunity for growth.
To try to solve this problem, Strix has been buying up small companies in related areas, such as hot water faucets and water filtration. The company has also built a new factory in China.
Unfortunately, these moves have left the company deep in debt. The group’s financial situation was also worsened by supply chain problems and the Covid disruption in China last year.
A dividend cut is also expected in this month’s results, though broker forecasts suggest the stock could still yield 6%.
I’m not sure if Strix’s recent acquisitions will ever be as profitable as its core business. One risk, from my point of view, is that part of this expense will eventually be written off.
However, I am encouraged by a recent change in tone by the company’s management. In an update in January, Strix said it was not planning any further acquisitions or factory construction.
Instead, the company wants to return to its “core operating model” to be highly cash generating.
If CEO Mark Bartlett can deliver on this promise to shareholders, I think the stock could be cheap at current levels. If you were looking for a small-cap value stock to buy today, you would certainly consider Strix.
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