I’ve been looking at some of my best investment trusts to buy. They can be a great way to diversify my portfolio in addition to the stocks I own. After all, investment trusts are simply a type of fund that trades on an exchange, with various different strategies that I can choose from.

Let’s take a look at two that I’d buy today.

Digital infrastructure

I view Big Data as one of the next big mega-trends. Oracle say this is “data that contains greater variety, arriving in increasing volumes and with more velocity”.

This brings me to the first investment trust, Digital 9 Infrastructure (LSE: DGI9). It invests in a range of digital infrastructure assets, such as subsea fibre, data centres, and also wireless tower networks. According to Digital 9 Infrastructure, internet traffic was predicted to increase by an average of 30% every year, even before the pandemic. Therefore, I view the trust as an excellent way of gaining exposure to the growth in Big Data in the years ahead.

Digital 9 Infrastructure targets both income and capital returns for its investors. However, it’s a fairly new trust, having only listed through an initial public offering (IPO) back in March 2021. As such, there’s limited track record on dividend payments. Also, the trust has been highly acquisitive since the IPO. It raised an additional £275m by way of a share placing, and has acquired numerous other digital assets in a short space of time. This is in line with its strategy, of course, but the limited track record does heighten the risk slightly.

The trust also incorporates the UN’s Sustainable Development Goal 9 into its investment process, which is to build resilient and sustainable infrastructure. This is represented by the ‘9’ in the trust’s name. It’s a forward-thinking approach to digital infrastructure investments, in my view, given the concerted efforts towards sustainability today.

So, on balance, I think this is one of my best investment trusts to buy.

A diversified mining trust

I’d also add the BlackRock World Mining Trust (LSE: BRWM) to my portfolio. It invests in a diversified mix of metals and mining assets across the world.

The trust aims to maximise total shareholder returns. It certainly achieved this last year as the dividend yield was 4%, and the trust’s net asset value increased by over 13%. It’s important to note that commodity prices can be highly volatile, so these returns are certainly not guaranteed. The strategy can also use leverage, which can amplify both gains and losses. This does increase the risk of the investment.

There’s also a sustainability benefit to investing in the trust. This is because certain metals are crucial components in things like electric vehicles (EVs), batteries, and wind turbines. For example, EVs require three- to-four times as much copper as standard vehicles. The BlackRock World Mining Trust currently has 21% of its assets exposed to copper, according to its factsheet.

I do like the diversification that this trust can bring to my portfolio. I would gain exposure to an experienced team that invests in critical resources for decarbonisation and renewable energy sources. So, taking everything into account, I’d buy this trust in my portfolio today.

Dan Appleby 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.

Over the past 12 months, the Tesco (LSE: TSCO) share price has generated a healthy 28% return for investors, significantly higher than the FTSE All-Share Index, which has risen 10% over the same period.

However, over the past five days, the share price has struggled, falling over 4%. What’s more, year-to-date the shares have fallen 2%. Does this mark the perfect opportunity to grab some cheap shares for my portfolio? Let’s take a close look.

Solid fundamentals

Inflation is wreaking havoc with markets, increasing volatility and creating uncertainty for investors. Whilst Tesco is not completely immune to this threat, it may be in a better position than some of its other FTSE 100 counterparts. Firstly, the retail grocery sector is highly defensive. Due to the consistent demand for Tesco products, the stock tends to provide stable dividends and earnings regardless of wider market moves. Secondly, Tesco has the market power to negotiate prices with suppliers, keeping them low, which could help draw in customers.

Considering the Tesco share price valuation, I also see positives. Trading at a mere 3.4 price-to-earnings (P/E) ratio, the stock seems to offer great value. For context, competitors Sainsbury’s and Marks and Spencer trade at P/E ratios of 11.9 and 9.5 respectively. In addition to its low valuation, Tesco also offers a healthy 3.1% dividend, which is very attractive to me.

A final point that excites me about the business is its newest venture, Tesco Whoosh. It’s a superfast delivery service, currently operating out of 115 stores. This number is expected to rise to 600 by the end of 2022 and offer over 1,700 products for customers. In my opinion, this is a great move from the grocery giant, as it allows Tesco to compete with smaller, fast delivery companies such as Gorillas and Getir.

Tesco share price risks

However, the supermarket landscape is a highly competitive and low-margin one. This means that the top producers are always competing on price. Complications from both Brexit and the pandemic led to severe supply chain issues across the industry. As a result, Tesco was forced to raise wages, which put further pressure on margins.

In addition to this, if inflation continues to trickle into Tesco product prices, consumers may begin to turn to cheaper alternatives such as Lidl and Aldi. This could impact revenues and would likely lead to a drop in the share price.

Should I buy?

All things considered, I like the look of the current Tesco share price for my portfolio. Although inflation creates the risk of rising prices, I think the defensive nature of the sector, coupled with Tesco’s industry clout, is enough to outweigh this risk. What’s more, with the share price falling over the past five days, I think now could be an opportunity for me to grab some discounted shares. Overall, at such a low valuation, I feel Tesco could prove a solid long-term investment for my portfolio.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

With £2,000 to invest, I’d likely put the entire amount in one new stock position as part of an existing diversified portfolio. Or, if the money was my first sum to invest, I’d split it between two stocks to start a new portfolio.

When choosing stocks, one guiding principle I aim to follow is to spread investments between several sectors. The market often surprises me. And the best gains sometimes come from industries I’m not expecting to perform as well, at least in the shorter term.

Consumer defensive

But whatever the sector, I aim to focus on businesses with good quality, value and operational momentum. For example, in the consumer defensive sector, Diageo (LSE: DGE) is down from its recent high. Yet the underlying business is trading well. And City analysts have pencilled in double-digit advances in earnings ahead. However, at 3,666p, the stock is up by around 25% over the past year.

The business model is built around supplying premium alcoholic drinks with strong brands. And the company has an impressive trading and financial record with consistent, multi-year gains in revenue, earnings operating cash flow and shareholder dividends.

On top of those attractive qualities, shareholders stand to gain from the company’s ongoing share repurchase (return of capital) programme. In February, the directors announced the third phase of the programme “of up to £4.5bn” to be completed during 2023. 

Previously, in January, the company reported “strong net sales growth across all regions”. And that’s the kind of outcome we’ve become used to from Diageo.

It’s not certain that the Diageo business will keep growing in the years ahead just because it has done well in the past. Operational challenges could arise to stall progress or consumer habit could change. However, I’d embrace the risks and consider the stock for my portfolio now.

Oil and gas

I’d also aim to participate in the booming commodities sector. And to do that I like the look of big oil and gas company Shell (LSE: SHEL). I think the demand for energy will likely keep oil and gas prices elevated for some time. And if supply disruptions occur, there will probably be even more upwards pressure on prices leading to greater profits for Shell.

The company is another in the middle of buying back some of its own shares. In January, the directors announced the commencement of the programme worth $8.5bn for the first half of 2022. 

But on top of that, shareholders will benefit from a healthy dividend. With the share price at 1,955p, the forward-looking yield for 2023 is just below 4%. But analysts’ assumptions can change. And profits and dividends could fall if commodity prices plunge.

Indeed, one of the biggest risks for Shell shareholders is that commodity prices are usually volatile. And that can lead to erratic performance for cash flow, profits, dividends and the share price.

Nevertheless, Shell tempts me right now and I’d dig in deeper with my research with the aim of adding the stock to my diversified portfolio.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.

Many investors in boutique asset manager Polar Capital (LSE: POLR), myself included, will be nursing some losses after a bruising few months for the share price. But could it actually be a top UK share in the coming years? 

Why has the share price been falling?

The Polar Capital share price has had a torrid six months. Over that timeframe, the shares have fallen 35%, and over the last three months by 25%. Over the last 12 months, the share price is down about 14%. The shares peaked last summer, but since the trajectory has been downwards.

What’s been driving the falls most recently, I think, is the fact that Polar Capital has a big technology fund under management. With share prices falling, I’d imagine investors are concerned that this fund and its associated fees may shrink. That would possibly make Polar’s future growth lower than previously expected.

Yet a trading update in July last year was pretty positive so I don’t see a really good reason why the shares started falling. My best guess is a good run for the shares that potentially led to some profit-taking. This was coupled more recently with inflation and falling tech stock prices to add to the damage.

Is it a good long-term buy?

This all makes me think the situation is not going to last too long. Polar Capital could well be a good longer-term buy, given its high dividend yield and low valuation. Turning to the former, the dividend yield is now 7%, much higher than just a few months ago because the share price has dropped. And the shares trade on a P/E of nine. That’s low in itself but really low compared to a competitor like Liontrust, which trades on a P/E of 17.

Polar Capital has been acquisitive in recent years, diversifying its assets under management and growing. It has 25 funds that aren’t specifically related to technology. So there’s a lot more under the bonnet. The healthcare opportunities fund, for example, has assets under management of £1.4bn, although it should be said it’s one of the larger non-tech funds. Other funds have a lot of room to grow. 

It has historically had a strong run of revenue and profit growth, along with high margins. Combined, these potentially show it to be a high-quality business and probably not one that deserves to see its shares down 25% in just three months. To me, the sell-off looks overdone.

Polar Capital — a top UK share? 

Nonetheless, the Polar Capital share price could remain under pressure for a while if technology stocks also remain under pressure because of inflation and interest rate rises. Yet I believe the shares are good value and the business is much more than a technology fund. For these reasons, I’m going to keep adding to my holding. For me, the share price has become disconnected from the performance of the business. It appears to be a top UK share and I think it should do very well in the coming years. 

Andy Ross owns shares in Polar Capital Holdings. The Motley Fool UK has recommended Polar Capital Holdings. 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.

Sosandar (LSE: SOS) is an under-the-radar penny stock. The women’s fashion e-tailer’s shares change hands at just under 30p per share and the market capitalisation is only around £60m. Yet revenue has gone from £1.35m in 2018 to £12.2m in 2021. Could this phenomenal growth continue and make Sosandar a great share to buy right now?

The case for investing in this penny stock

When looking at a small-cap penny stock one of the things many private investors want to see is management holdings, as well as (of course) the business’s financial performance. On this front, I think Sosandar measures up well. Alison Hall, the co-founder and current joint CEO, has around 5% of the shares. On that basis management incentives are well aligned with shareholders. She’ll presumably want the share price to go up!

Talking of investors, the company has a number of very reputable institutional investors among its biggest holders, including Octopus, Amati and Schroders. Another reassuring sign I think. 

Sosandar said last month that revenue had soared in the three months ended 31 December, leading the group to a record quarterly performance. Revenues were up 122% year-on-year in the third quarter at £8.85m. This will move it towards profitability, which I think will make it seem like a much better investment.

Analysts at Singers see potential for Sosandar to achieve £75m-£100m revenues and a more than 10% EBITDA margin, within the next couple of years, indicating the potential for massively improved financial performance in the coming years.

The retailer could also expand overseas. Management has spoken of a “massive opportunity” to expand overseas via third-parties. Again, this could really boost organic growth and help lift the company into profitability.

Overall, to answer my earlier question, I think the phenomenal revenue growth could continue and increasing economies of scale and repeat custom could make this a much higher-quality, profitable business. In turn, I’d hope to see that translate into strong share price growth.

The bear case

There are still issues though. The company right now is loss-making. That will put off some investors. Fashion is also notoriously risky as new products are launched every season and could fail to spark. The biggest risk is the shares aren’t cheap, especially because it’s an unprofitable business. Furthermore, if something goes wrong, and revenue growth stops, the share price would very likely plummet.

Weighing the scales

The rapid growth of e-commerce in recent years hasn’t helped it move into profit just yet. But the business is moving in the right direction and is relatively young, while the top line is growing fast. 

As a penny stock with a £60m market cap, there’s a lot of room for Sosandar to become much bigger than it currently is. It operates in a massive market with lots of potential customers, so while there is competition, there is also a huge opportunity. If I weigh up the risks versus the rewards Sosandar looks to be heavily weighted towards future share price growth as and when it becomes profitable. For that reason, I’m considering adding the shares to my portfolio. I think Sosandar might be a bit of a hidden gem.  

Andy Ross owns no share mentioned. The Motley Fool UK has recommended Schroders (Non-Voting). 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.

It’s been a volatile start of the year for stock markets. When volatility does strike, I look to see if there are any bargain buys in the indexes, such as the FTSE 250. There are currently 211 stocks in this index that have fallen so far this year, so I may find a company that’s been oversold.

Here’s one that I’d buy today as a long-term investor.

A FTSE 250 stock that looks oversold

The company I’ve been looking at is Homeserve (LSE: HSV), a provider of home repair services across the US and Europe. It offers a subscription service to customers for emergency repairs. In addition, the company also owns platforms such as Checkatrade that connects tradespeoples to homeowners.

Overall performance at the company looks to be improving. For example, Homeserve is expected to achieve an adjusted net income margin of 11.5% in fiscal year 2022 (FY22, the 12 months to 31 March 2022). This would be an improvement on the 8.7% net income margin it achieved in FY21.

Revenue for FY22 is also forecast to increase by over 9%. This is great to see as a potential shareholder: growing revenue and improving profit margins. There’s a good chance that the share price will rise if this continues!

However, the share price has done exactly the opposite recently. Over one year, the stock has plunged 29%. The FTSE 250 has dipped by almost 0.4% across this time, so the Homeserve share price has significantly underperformed.

The reason is the valuation. Based on a forward price-to-earnings (P/E) ratio, Homeserve is valued on a multiple of 14 today. This time last year the stock was trading on a P/E of 19. And before the pandemic, the P/E multiple was an even higher 30.

So, although the overall financial performance of the business looks to be improving, investors have been willing to pay less for Homeserve shares recently. This could be a sign that the stock has been oversold as markets have fallen this year.

Why I’m buying as a long-term investor

Another reason why a company’s valuation can decline is due to uncertainty about its future. I think this has been another factor that has led to the underperformance of Homeserve shares. Indeed, the company is undergoing a “transformation plan to stabilise its UK business and return it to growth”. This is a key risk for the business as the UK is its most established market. In fact, operating profit across Homeserve’s UK business fell over 10% in FY21 compared to the prior year.

Things are starting to improve though. In the most recent half-year results to 30 September, operating profit across the UK grew by 3% over the same period in 2020. Homeserve also said: “There has been good early progress on initiatives to transform and broaden the UK business”.

The investment here isn’t without risk. However, I like the early signs of improvement with Homeserve’s UK business. The overall performance, particularly in the key North American market, has been excellent, too.

Taking everything into account, I do think Homeserve has been oversold recently. I also view the risks for its UK business as having been fully priced into the share price. Therefore, I’d buy the stock today as a long-term investor.

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. 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.

According to share account provider AJ Bell, analysts estimate the combined dividend yield of all the companies in the FTSE 100 index will be around 4.1% in 2022.

And I think that’s a reasonable figure to use in calculations aimed at working out the potential of the UK stock market to deliver passive income via shareholder dividends.

Compounding gains from dividend stocks

For example, if I put around £210,000 in a low-cost index tracker fund following the Footsie, I’d potentially earn an annual dividend income of around £8,400. And that would give me £700 a month to spend from passive income. Although such an outcome isn’t certain or guaranteed.

The yield of the Footsie varies up and down over time as the businesses behind the stocks alter their payments. And changes can occur at any time whether positive or negative.

However, some UK companies are yielding higher than the FTSE 100 index. For example, big mining company Rio Tinto has a prospective yield just above 9%, as I write. Electricity-focused utility company National Grid expects a yield just below 5%. And telecoms outfit Vodafone is around 5% as well.

But they aren’t the only London-listed companies with high dividend yields. So I’d aim to invest regular money into selective high-yielding stocks. Then I’d plough all the dividends back into my investments with the aim of compounding my gains and building up the value of my investment pot.

If I keep investing regular monthly sums for many years and keep compounding my gains, the goal of reaching a pot worth £210,000 could be achievable. But it’s worth me bearing in mind that not all company dividends are sustainable.

Diversification and close monitoring

For example, stocks in cyclical sectors are known for their famine-and-feast characteristics. And dividends could be here today and gone tomorrow. But that doesn’t mean I should never invest in cyclical stocks. It just means I need to invest at opportune times and keep an eye on my stocks when holding them.

Right now, I think natural resources stocks look attractive. So I’d be inclined to consider stocks such as Glencore, Anglo American and BP. But when it comes to a dividend-led investment strategy, one of the best approaches for me is to invest with diversification across sectors. And that means I’d also target defensive, less-cyclical companies such as Imperial Brands, Tate & Lyle and the other companies mentioned in this article.

One of the great strengths of high dividend stocks is they tend to have other value characteristics as well. And one theory I’m keen on right now is that stocks with strong value characteristics will likely lead the charge higher in the next bull market.

After all, it’s hard to deny that growth stocks with high valuations have seen substantial falls lately. And it could mean they’ve had their day in the sun for the time being, and perhaps for years to come.

Kevin Godbold owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands and Vodafone. 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.

I bought BT (LSE: BT.A) shares a while ago. Holding on to them has been an exercise in patience. Finally however, the FTSE 100 stock is beginning to pay off. Its share price has risen more than 50% in the the past year and it has restarted its dividends too. This is all very well, provided that my gains from the stock continue to accrue. Otherwise, am I better off selling it off while it is still ahead? 

BT share price flip-flops

The answer to the question is not as straightforward as it might appear on the surface. And by that I mean, that I cannot take the stock’s rise for granted. It is true that the BT stock price is now back to its pre-pandemic levels. But here is the catch. This is not the first time it has achieved that level. It was there in the middle of last year. And in any case, the long-term share price chart still looks disappointing. Over the past five years it has fallen some 40%. 

Unconvincing valuation

Moreover, even a basic metric like its price-to-earnings (P/E) ratio does not look terribly encouraging. It has a P/E of 19 times, which is higher than the FTSE 100 ratio of 16 times. Now, it is not a given that a stock with a higher-than-average earnings ratio will necessarily see little or no increase in its share price. There are plenty of high-performing stocks whose P/Es are routinely higher than average, but then they have the results to back that. 

And that is not true for BT, I am afraid. The company’s revenues and earnings have both declined over the past couple of years. Even though its dividends are back, they are far from where they were pre-pandemic. Its current dividend yield is a small 1.2%. This compares unfavourably to the FTSE 100 average of 3.4% at present. But it also compares unfavourably against its own yield over the past five years of 4.9%. 

Its latest trading update was not particularly encouraging either. The company expects its revenue to decline in the current financial year because of a delayed recovery. While its expectations for all other metrics are unchanged, I am less certain of how they will turn out now and what will happen to the share price. 

Is this FTSE 100 stock a buy for me?

All is far from lost for BT. The company is a big player in telecoms and broadband provision. Openreach, its fibre optic cables division that rakes in some serious profits for the company, is doing particularly well. In a fast growing post-Brexit UK economy, I think the BT share price has the potential to do well. But I am not convinced I want to buy it yet. I am not selling my existing stock but given the choice, I will not be buying more of it. 

Manika Premsingh owns BT GROUP PLC ORD 5P. 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.

At the time of writing, the IAG (LSE: IAG) share price is changing hands around 160p. However, before the pandemic began in February 2020, the stock traded for more than 400p per share.

As the global economy reopens, the airline group could see a substantial recovery in its sales and profitability. Could this be enough to send the stock back to 400p and double my money? 

IAG share price potential

A lot has changed for the enterprise over the past two years. The pandemic decimated the corporation’s revenue, profits and balance sheet. At one point, it was selling the silverware from its fleet of 747 planes to try and raise money. 

The company, which owns the British Airways brand among others, has come a long way since the depths of the pandemic. Analysts believe the group is on track to break even in its 2022 financial year. 

Of course, a lot can go wrong over the next couple of years. IAG may never hit this target. Rising fuel prices and the cost of living crisis could hit the firm in the pocket. With an already weak balance sheet, if the economic situation deteriorates further, the group may have to ask shareholders for additional capital to keep the lights on. 

That is the worst-case scenario. In the best-case scenario, the group will exceed City forecasts to break even in the next two years. If it can return to profit in the next three years, I think investors may be willing to place a higher multiple on the shares. 

At this point, it is difficult to tell how much the market will be willing to pay for the IAG share price. As the firm is not profitable, I cannot use the earnings per share figure. This figure compares a company’s profitability to its current share price. 

Instead, I can use the price-to-sales (P/S) ratio. This compares a company’s total sales figure to its price and is more useful when analysing unprofitable corporations. 

Undervalued opportunity

Based on its projected figures for 2022, the IAG share price is currently selling at a P/S ratio of around 0.5. By comparison, the company’s US peers are trading at an average multiple of about 1. 

These numbers imply that the stock could double from current levels as sales recover. This assumes sales do recover over the next couple of years which, as I noted above, is far from guaranteed. Unfortunately, the numbers suggest the stock only has the potential to rise to around 320p, not the pre-pandemic level of 400p.

Still, considering this outlook, I think the IAG share price has the potential to double my money over the next couple of years in the best-case scenario. On that basis, I would be happy to buy a speculative position, although I will be keeping an eye out for the challenges outlined above and their impact on the business. 

Rupert Hargreaves 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.

I think these nearly penny stocks could be too cheap for me to miss following recent market volatility. Here’s why I’d buy them both today.

Riding the streaming boom

The vast amount of choice that TV viewers have today has sparked an arms race among the streaming giants. The likes of Netflix, Disney, and Amazon are spending eye-popping amounts on content to attract our attention. WarnerMedia and Discovery plan to raise the bar even further, too: they plan to spend $20bn on programming for their Discovery+ and HBO Max platforms when their merger completes later this year.

All of this bodes well for Zoo Digital Group (LSE: ZOO). This almost penny stock provides a range of production services for broadcasters, movie studios, and streaming companies. These include subtitling and dubbing programming, fine-tuning scripts, and optimising content for local audiences.

Last month Zoo Digital raised its revenue growth forecasts for the current financial year (ending March 2022) to 44%. The tech firm said that its strong order pipeline continues to grow, too, giving it robust profits visibility beyond the medium term. And it said that its appointment as primary vendor for the European launch of a global streaming service “will lead to significant orders commencing in quarter four and delivering meaningful revenues in financial 2023”.

Terrific value for money

Zoo Digital’s earnings outlook looks pretty sunny, then. And this is reflected in current City forecasts. Analysts think the business will bounce back into profit this year following the initial stresses caused by Covid-19. They reckon earnings will jump 141% in the upcoming financial year beginning in April. An extra 52% is forecast for financial 2024 as well. Like all forecasts, these could change based on future developments.

I believe these estimates could make Zoo Digital too cheap for me to miss. They mean that, at current prices of 125p per share, the company trades on a forward price-to-earnings growth (PEG) ratio of 0.5. Conventional investing theory says that a reading below one means a stock could be undervalued by the market.

Another nearly penny stock I’m considering buying

Oxford Metrics (LSE: OMG) is one more almost penny stock on my watchlist today. This UK tech share doesn’t offer the same sort of value as Zoo Digital. But at 105p per share it still trades on a quite reasonable forward PEG ratio of 1.

I like Oxford Metrics because demand for its motion tracking technology is robust. It is used to produce special effects in movies, helping highways authorities monitor traffic flows, and assisting clinicians with administering healthcare. The range of applications for the tech is steadily rising.

It’s why City brokers think earnings at Oxford Metrics will rise 37% in this financial year ending September 2022. They’re tipping profits to increase by 16% next year as well.

Of course Oxford Metrics and Zoo Digital aren’t without risk. The former, for example, needs to invest colossal sums in its products to remain competitive, something that can be a drag on profits growth. Meanwhile Zoo Digital could suffer if demand for streaming services begins to fall. But at current prices I believe these two cheap UK shares are still top buys for my portfolio right now.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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.