The world of penny stocks can be a risky place. After all, these are small companies with limited resources that often fail to turn into anything ground-breaking. But every once in a while, a diamond in the rough can appear. And spotting these opportunities early on can lead to impressive wealth generation over the long term.
With that in mind, here are two penny stocks I think have the potential to explode over the next 10 years.
Data is more precious than gold
As technology continues to advance, data has become a valuable commodity for any business. Analysing and predicting customer behaviour can lead to significantly higher sales for products and services. Of course, simply knowing what customers want is not enough. Businesses need to be able to act on these trends with clever marketing strategies. And that’s where dotDigital (LSE:DOTD) steps in.
This platform-as-a-service provides automation tools for data-driven marketing. In simple terms, it generates personalised advertising content and then distributes it to increase customer conversion and spending of its clients.
With online shopping becoming an increasingly competitive space, the need for such solutions is surging. And looking at dotDigital’s double-digit revenue growth, it’s clear to me the company is capitalising on the opportunity.
Having said that, this is far from a risk-free investment. In recent months, the penny stock has taken a bit of a tumble. And even after falling almost 40% since September last year, it still trades at a lofty price-to-earnings ratio of 45.
This high valuation does open the door to further volatility. However, given the long-term potential, I believe the risk is worth the reward. That’s why I’m looking to increase my existing position in this penny stock.
A thriving penny stock in the mining sector
As industries go, mining is probably towards the top of the list when it comes to risk. After all, exploring, developing, and eventually extracting metals from the ground is a pretty expensive endeavour that often leads to disappointing results.
But despite its small size, Anglo Pacific Group (LSE:APF) seems to be beating the odds – probably because it doesn’t actually do any mining. Instead, this company looks to finance the initial cost of developing a site for other mining companies that have already done the hard and risky work of identifying a suitable digging location. In exchange, the group receives a portion of the extracted metals as a form of royalty payment for providing the funds early on.
With demand swelling for precious metals like cobalt and copper, courtesy of electric vehicles and renewable energy infrastructure, the firm seems to be perfectly positioned to surge in the coming months and years.
But like all mining businesses, it’s exposed to several major risks. Most notably is its lack of pricing power. Suppose the demand for certain metals start to fall, or the supply eventually exceeds what’s needed. In that case, metals prices will naturally begin to decline, taking Anglo Pacific’s profits with it.
Personally, I think this is a risk worth taking. Therefore, I’m considering adding some more shares of this penny stock to my portfolio in 2022.
Zaven Boyrazian owns shares of Anglo Pacific and dotDigital Group. The Motley Fool UK has recommended Anglo Pacific and dotDigital Group. 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.
