Here are a couple of penny shares I would consider adding to my portfolio at the moment. I like them because, although the shares each trade for less than a pound, I think the underlying businesses look strong.
Lookers
Car dealership Lookers (LSE: LOOK) has seen an incredible run lately. I have previously explained why it had an outstanding January, with the Lookers share price soaring 39% in a month. Over the past year, the shares are up 153%.
Despite that, they continue to trade as penny shares. Even after the gains, I continue to think Lookers is cheap. The book value of its property is around 78p per share. But the business itself is a key asset on top of its property holdings. The company has seen strong customer demand and expects that last year will result in a record underlying profit before tax. Meanwhile, the recent purchase of almost a fifth of the company by an industry giant suggests that it sees upside to the current Lookers valuation.
Lookers has said it plans to reintroduce its dividend this year. If it does so, that could provide another fillip for the share price. There are risks here, too. For example, tightening demand of new cars could hurt revenues. The costs of dealing with ongoing supply chain challenges could eat into profits.
But with its established dealer brands, property portfolio, and strong business outlook, I continue to see value in Lookers. I would happily buy it for my portfolio at the current share price.
Assura
I like the business model of healthcare landlord Assura (LSE: AGR). But last time I looked at the shares I felt that the dividend yield was good, not great. The stock has fallen around 9% since then, making for a 14% decline over the past year. A falling share price has led to an increased yield.
I think that makes Assura more attractive as a possible addition to my portfolio. The shares now yield 4.6%. Assura pays dividends quarterly and has been raising the payout annually, although there is no guarantee it will continue to do so.
In a trading update last month, the company said that it had seen “another strong quarter of progress”. Assura has continued to expand its portfolio. It reckons the healthcare backlog created by the pandemic could increase the need for healthcare facilities, possibly boosting its revenues and profits.
The strategic focus on healthcare is what interests me about Assura. I expect demand for healthcare facilities to remain high for years or decades to come. Tenants such as doctors’ surgeries are likely to pay their rent. So Assura’s growing portfolio could be very lucrative. One risk is increased competition leading to higher prices for new property purchases. That could hurt the firm’s profitability.
But with an attractive asset base, appealing strategic focus, and knocked down share price, I would now happily add Assura to my portfolio.
My move on these two UK penny shares
I would happily consider both of these shares for my portfolio. That is not because they trade as penny shares. Rather, in each case I see an attractive business with the potential to produce long-term profits that could hopefully reward me as a shareholder.
Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
