As the UK economy continues to recover from the pandemic, I’ve been looking for penny stocks to buy that may profit from the recovery.
I’ve been focusing on these smaller businesses as I think they have more potential. Smaller companies took a bigger hit than their larger peers at the beginning of the pandemic, but I believe their recovery will be more substantial.
Of course, there’s no guarantee this will happened. It’s only my opinion. As such, this strategy’s unlikely to be suitable for all investors. Still, I’m comfortable with the level of risk involved.
So here are two penny stocks I’d buy for my portfolio today as recovery investments.
Penny stocks on offer
The first stock on my list is the pub operator Marston’s (LSE: MARS). With 1,500 pubs across the country as well as a 40% holding in Carlsberg Marston’s Brewing Company, the group is a bellwether for the UK hospitality industry.
According to its latest trading update for the 42 weeks to 24 July, business across its estate since the economic reopening has been “better than our expectations.” Between 12 April and 24 July, sales were 90% of 2019 levels.
These figures show the company still has some way to go until it’s fully recovered, but it’s definitely heading in the right direction. That’s why I’d buy it for my portfolio of penny stocks.
And as consumer confidence continues to improve, I think shares in Marston’s should begin to reflect this improving confidence.
However, a significant risk hanging over the company’s potential is the threat of another lockdown. This could destabilise its recovery and would almost certainly hurt consumer confidence, delaying the group’s return to normality.
Another hospitality business I’d buy for my portfolio of penny stocks is City Pub (LSE: CPC). While not technically a penny stock, this firm’s market capitalisation of £121m certainly places it in the small-cap bracket. That’s why I’m interested in the enterprise as a recovery play.
The last time the company updated the market was ahead of its annual general meeting at the end of June. At that point, management informed investors that trading was 90% of 2019 levels at the 42 pubs it had reopened.
Considering this update and assuming the firm has seen the same high demand as Marston’s in July, I don’t think it’s unreasonable to assume the group is well on the way to recovery. This is why I’d also buy the shares for my portfolio of penny stocks.
However, like Marston’s, the most considerable risk to City Pub’s recovery is Covid. Another lockdown or a new variant could decimate both trade and consumer confidence. In these situations, I’d be forced to reconsider my opinion of the business and its recovery potential over the next few years.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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.