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Every time I look for potential penny stocks to buy, a small pharmaceutical company keeps coming up.
Is Poolbeg Pharmaceuticals (LSE: POLB), and has a novel research model that requires little cash and offers the potential to develop multiple product lines at lower costs than traditional methods.
There is artificial intelligence (ai) there, and I find it exciting and cause for concern. The potential of ai is huge, but any stock that simply mentions it seems to get a boost.
Poolbeg shares have been rising since the end of 2022. But we're still looking at a market capitalization of just £62m.
There are no signs of profits yet and that has to be the biggest risk. But when I look at a company with a promising technology that is so undervalued, I see that the cost of an acquisition is just pocket money for a large pharmaceutical giant.
Even in the case of specific research products, the company talks about possible sales of the entire production at an early stage.
If I choose Poolbeg, it could be in the hope of a future purchase by a large company… and it would only be with a small amount of cash.
lithium please
He Kodal Minerals (LSE: KOD) share price is just 0.44p. But in February it was as low as 0.27p, so it's already a gain of over 60%.
To be fair, it briefly peaked at almost a penny in early 2023. But that's when lithium stocks boomed, and it's been down a lot since then.
With a market capitalization of £89m, Kodal is not far below the usual limit for UK penny stocks of £100m.
The main risk is the lack of current benefits. But analysts tentatively forecast modest positive earnings by 2026.
Following its recent funding round, Kodal recorded £11.2 million in cash on its books. Therefore, its lithium development plans do not appear to be under any financial threat at this time.
Still, until we see earnings and know the extent of any shareholder dilution before we get there, there's still quite a bit of risk.
Not a cent
I'm going to cheat now and make a third choice. This, Michelmersh Brick Holdings (LSE:MBH), is no longer a penny stock at 105p. But it very recently cost less than £1 and the market capitalization is still under £100m.
To me, the investment argument here is simple. We are profitable and earnings are expected to increase. And there is a future dividend yield of 4.3%, which is expected to grow to 4.7% by 2027.
And that's from a small-cap company with price-to-earnings (P/E) multiples that appear to fall below 10.
In its latest fiscal year results, the company talked about maintaining a well-balanced forward order book, after a decline in the market, and remaining resilient in anticipation of new growth.
Much depends on the UK housing market and the recovery in house construction. And that might take longer than bullish investors like me might think. But for me it is another possible long-term purchase.
