Stock market

Consider buying penny stocks while their prices are so cheap.

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Every time I look for potential penny stocks to buy, one small pharmaceutical firm keeps popping up.

it is Pool Bag Pharma (LSE: POLB), and has a new research model that is cash-light, and offers the ability to produce multiple product lines at a lower cost than traditional methods.

Artificial intelligence (AI) is out there, and I think it’s exciting and a cause for concern. The potential for AI is huge, but any stock that merely mentions it gets a boost.

Poolbeg’s shares have been rising since late 2022. But we’re still looking at a market cap of just £62m.

No sign of profitability yet, and that should be the biggest risk. But when I look at a company with a promising technology and a valuation this low, I see a takeover price that’s just pocket money for a big pharma company.

Even in the case of specific research products, the company talks about potential sales of the entire product at an early stage.

If I went for a pool bag, it might be in anticipation of a future purchase from a major company… and it would only be with a small amount of money.

Lithium please

gave Codal minerals (LSE: KOD) shares are worth just 0.44p. But it was as low as 0.27p in February, so that’s already a gain of over 60%.

To be fair, it briefly peaked around a penny in early 2023. But that’s when lithium stocks were bullish, and they’ve been pretty down since then.

With a market cap of £89m, Codel is not above the usual range for a UK penny stock of £100m.

The main risk is the lack of current profits. But analysts are tentatively forecasting marginally positive earnings through 2026.

Following its most recent funding round, Coddle reported £11.2m of cash on the books. So its lithium development plans don’t appear to be in any financial danger yet.

Still, unless we look at profitability, and know the extent of any shareholder vulnerability before we get there, there is still considerable risk.

Not a penny stock.

I’m going to cheat now, and choose the third. This one, Michelmarsh Brick Holdings (LSE: MBH), at 105p is no longer a penny stock. But it was recently below £1, and the market cap is still below the £100m mark.

For me, the investment case here is straightforward. We are profitable, with forecasted growing revenue. And the forward dividend yield is 4.3%, rising to 4.7% by 2027.

And this from a small-cap company with price-to-earnings (P/E) multiples that look set to fall below 10.

With its latest financial results, the firm spoke of maintaining a well-balanced forward order book and remaining flexible in anticipation of new growth, following the market downturn.

Much depends on the UK property market and housebuilding recovery. And it may take longer than fast investors like me think. But this is another potential long-term purchase for me.

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