Was this article helpful?

YesNo

Was this article helpful?

YesNo

Key points

• Penny stocks can provide excellent growth in the long term
• Argo Blockchain is vastly increasing revenues and profits
• Tullow Oil has improved free cash flow and is focused on exciting expansion in West Africa 

Penny stocks can be great investment choices. Generally defined as stocks with a share price below £1, they can potentially provide excellent long-term growth. I have £1,000 to invest and I think I’ve found two interesting penny stocks. Why do I think these penny stocks warrant investment? Let’s take a closer look. 

A crypto-mining penny stock

Argo Blockchain (LSE: ARB) is a company that mines cryptocurrencies, mainly Bitcoin. While it is UK-based, it operates facilities in Quebec and Texas. The site in Texas is employing greater renewable energy for its mining operation. Furthermore, investors displayed the confidence they have in the company by raising £49.2m in early 2021 to fund this new and greener facility.

This penny stock is also becoming ever more profitable. Recording a £4.12m loss for the 2018 calendar year, this quickly turned into a £10.7m profit before tax for the first six months of 2021. Revenue also increased 180% between the first six months of 2020 and the same period in 2021. For me, this is a strong indication that things are going in the right direction.

An important metric to gauge progress is the number of Bitcoin mined per month. The January 2022 figure is slightly lower than the previous month, falling from 214 to 176. This is explained, however, by “an increase in network difficulty”. This appears to be a short-term issue and should subside soon. With a recent upturn in the Bitcoin price, I think this penny stock is a very exciting opportunity indeed.

Another exciting penny stock

With the oil price recently breaking the $90 barrier, I also like the look of Tullow Oil (LSE: TLW). Trading at just over 50p, the share price has fallen 75% since the beginning of the Covid-19 pandemic in March 2020. Only last month, in a trading statement for the three months to 31 December 2021, Tullow Oil stated that its free cash flow (FCF) was ahead of guidance at $250m. In spite of this, revenue for the 2020 calendar year was about $300m less than the same period in 2019. Nonetheless, net debt has fallen to $2.1bn in 2021, compared with $2.4bn the previous year. 

This all means the company can focus on expansion. It is increasing its stakes in two oil fields in the West African country of Ghana. This compelled Barclays to lift its target price on Tullow Oil to 75p from 60p, citing “updated valuations and estimates” and “a realignment of relative upside”. Together with this penny stock’s improved financial position and its exploration prospects, I think Tullow Oil is quite the bargain.

I firmly believe that my £1,000 would be well invested between these two penny stocks. They are both exciting prospects and have further growth potential. What is also heartening to see is that both companies are expanding their operations, with Argo Blockchain moving into renewable crypto mining and Tullow Oil entering into new oil fields. I will be splitting the £1,000 equally between these two penny stocks now!

Andrew Woods 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.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Was this article helpful?

YesNo

Pharmaceuticals giant GlaxoSmithKline (LSE: GSK) has been attractive to income hunters for a while thanks to its tasty dividend. It has just announced a big increase in its quarterly dividend. But on closer examination, I do not think this is as attractive as it first sounds.

The GSK dividend is flat

For its fourth quarter, the dividend per share was announced at 23p, compared to 19p per share in the prior quarter. That makes it sound as if the dividend has increased 21%.

But that is not really the case. The company often pays out a higher quarterly dividend in its fourth quarter. So while 23p is higher than the last quarterly dividend, it is the same as the fourth quarter dividend paid last year. The total dividend for the year comes out at 80p per share. That is exactly the same as last year and, in fact, the past few years before that.

That still equates to a dividend yield of 4.9%. I do find that attractive for a FTSE 100 share. But while the dividend rose quarter-on-quarter, overall it is flat. Worse than that is what I expect to come next.

What is the prospective GSK yield?

Right now a lot of GSK investors’ attention is not focused on the past yield but the future one. The company plans to break into two parts – a pharmaceuticals business and a new consumer goods one. It has previously indicated that this could mean a lower total dividend in future compared to now.

In today’s results, GSK provided some perspective on this. The company has said that it expects to pay 45p per share in dividends next year for the residual pharmaceuticals business. On top of that, shareholders will have an interest in the consumer goods business. The dividend for that will depend on the new company’s management, but in its guidance today, GSK suggested that it would likely amount to around 7p per current share.

That means that if I buy a GSK share today, next year the dividends I receive after the split will probably be around 52p. That is a 35% decline from the current dividend, even after it has been held flat for many years. At a stroke, the prospective GSK yield falls to 3.2% from its current level of 4.9%.

My next move

GSK remains an industry giant and its full-year results did contain some positive signs. Revenues rose 5% excluding the impact of exchange rates. Full-year free cash flow of £4.4bn underlines the company’s ongoing ability to generate substantial amounts of cash. That is important when funding a dividend.

But after years of holding the dividend flat – albeit with an attractive yield lately – the company’s upcoming split is likely to lead to a sizeable fall in the GSK yield. If the dividend does fall as expected, I would not be surprised to see the combined share price of GSK and the new consumer goods business fall, as well.

For that reason, I see the current GSK yield as a possible value trap for me. With the dividend level clearly under threat, I will not be adding the firm to my portfolio.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.

Key points

• Molten Ventures and Hochschild Mining have extremely competitive earnings growth records
• They provide welcome diversity to my portfolio
• The companies are well-run, profitable, and expanding  

The FTSE 250 index can be an excellent place to find exciting growth stocks for long-term gains. I believe I’ve found two ‘no-brainer’ companies to purchase for my own portfolio. They come from the mining and technology sectors and, therefore, enable diversification in my own holdings. Why should I buy these two stocks? Let’s take a closer look.

A FTSE 250 miner

Hochschild Mining (LSE: HOC) is a silver and gold mining company operating in Argentina, Chile, and Peru. It is clear that this stock has been performing year in, year out for its shareholders.

The calendar years from 2016 to 2020 tell a story of extraordinary growth. The earnings per share (EPS) data from 2016 was ¢0.11, rising to ¢6 in 2020. What this means is that the company’s EPS has a compounding annual growth rate of 122%. This is competitive by any standard and is a major reason why Hochschild Mining stands out to me on the FTSE 250.

Furthermore, a production report for the 2021 calendar year revealed that the company was producing gold and silver with all-in costs per ounce of $1210 and $14, respectively. At current levels, Hochschild’s production costs are 33.7% and 39% below the market price. The company will inevitably benefit when it sells these precious metals to market.

With the upcoming US Federal Reserve rate hike, however, I am concerned that the underlying silver and gold prices will be negatively impacted. While this is possible, there is not actually a strong historical correlation between rate hikes and commodity slumps.

The FTSE 250 stock will soon acquire Amarillo Gold, based in Brazil. This is an example of how the management is eager to expand and fits the “long-term strategy of acquiring and optimising development stage projects”. Hochschild is clearly thinking long term.

An exciting tech stock

Molten Ventures (LSE: GROW) is similar in terms of its earnings growth. For the 2017 fiscal year, EPS was 80.8. By the same period in 2021, this figure stood at 208. By my calculations, this results in a compounding annual growth rate of 20.8%. While this FTSE 250 stock is not as competitive as Hochschild Mining, it is certainly strong and consistent.

Another factor that makes Molten Ventures attractive is its profitability. Between the fiscal years 2017 to 2021, profit has grown from £33.68m to £267.45m before tax. This strongly suggests that the stock’s business model of finding early stage tech companies is working.

Indeed, it has a strong record of finding companies that have later listed publicly. These include Trustpilot Group and Cazoo Group. Furthermore, the FTSE 250 stock is recycling its earnings efficiently, investing £259m in 12 primary and 15 secondary projects for the 2022 fiscal year.

In spite of this, the recent tech sell-off impacted Molten Ventures and is concerning. However, I believe this is a short-term problem that will subside in the near future. The company stated this month, for instance, that it was enjoying “continued momentum”.   

Both of these stocks are ‘no-brainers’ in my opinion. The growth records speak for themselves and suggest that both companies are performing for their shareholders. By investing in mining and tech, I will also further diversify my portfolio. I will be buying shares in both stocks immediately.

Andrew Woods 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.

Was this article helpful?

YesNo

Hot on the heels of Shell last week, it was pretty much a feeling of déjà vu as BP (LSE: BP) reported its best set of results in eight years. However, despite a recent rise, its share price remains far off its all-time high.  Sporting a dividend-yield of 4.2% and a P/E ratio considerably below its long-term average, has not been enough to tempt back sceptical investors. So, can BP revive its fortunes and those of its shareholders? I think it can, and as an existing holder I’d be happy to buy more today. Here’s why.

2021 results

Whichever metric one looks at, BP posted an impressive set of figures for 2021. Surging oil and gas prices, particularly in the fourth quarter, turned BP into a cash generating machine as it raked in revenues of $164bn. Translated to the bottom line, profits hit $12.8bn. Operating cash flow doubled to stand at $23.6bn. Cash and cash equivalents stood at $30.6bn, slightly down on 2020. However, this number was impacted by a reported operating loss in Q3 as a result of a complex derivative valuation. On the balance sheet side, net debt was reduced by 21% to stand at $30.6bn, reflecting a seventh quarterly reduction.

However, despite the bumper results, the dividend remains unchanged. Instead, the company has allocated over 60% of free cash flow to share buybacks up to 2025. A potential problem with allocating so much cash in this way is that it could artificially inflate the share price, thereby limiting the company’s options on this front.

Is BP undervalued?

BP is facing the tough task of pivoting its core business away from oil and gas to become what it describes as an “integrated energy company”. However, it needs the cash from its core business in order to fund this transition.

By 2030, it still expects to be generating similar profits from oil and gas as it does today. But production will be reduced by 40%. Margins should be maintained through concentrating capital expenditure on existing hubs. Also, it expects development costs to fall by 40% to $9 barrel oil equivalent (boe). This tells me that it has no intention of cannibalising its core business any time soon.

But what of its leap into the renewables space? By 2030, it’s only expecting $2bn-$3bn of profit to be generated from its low-carbon energy business. Its bigger bet in this decade is actually in the convenience and mobility sector. Here, it’s aiming to double profits to $9bn-$10bn.

Personally, I think this is the correct space to be playing in. As EV adoption becomes mainstream, together with the electrification of heat, the demands on the electricity network will change. What will become increasingly important in this new world will be connected energy systems. Companies that are able to navigate the complex regulatory environment and have experience in trading will have a competitive advantage. BP certainly ticks the boxes here.

The road to becoming an integrated energy company will not be an easy one for BP. However, it knows that if it’s to survive another 110 years it can’t rely purely on revenues from oil and gas. The energy transition will take many decades to play out fully though. But if it executes on its strategy correctly, a re-rating of BP’s share price could follow very quickly.

Andrew Mackie owns shares in BP. 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 have allocated a percentage of my portfolio to investment trusts.  This is because I believe these vehicles are one of the best ways for me to build exposure to different sectors and industries. If I am not comfortable investing in an industry, I would rather outsource the process. 

Unique investment trusts 

A great example is the Allianz Technology Trust (LSE: ATT), which I would add to my portfolio to build exposure to the global technology sector.

Over the past five years, the trust has returned more than 300%, thanks to its exposure to high growth technology stocks such as Microsoft. 

Past performance should never be used to guide future potential and I think it is unlikely the trust will repeat this impressive performance over the next five years.

Nevertheless, as a way to build exposure to corporations like Microsoft and other more niche operators such as the cloud security company Zscaler, I think the trust looks incredibly attractive. 

Unfortunately, some investment trusts can be quite expensive ways to invest in the market. Most charge an annual portfolio management fee, and some even charge a performance fee if they exceed their benchmark return.

The Allianz Technology Trust charges both. These fees exceeded 3.6% in 2020, although the trust did return 80% compared to its benchmark return of 42%. In the long run, these high fees could eat into investor returns. 

Still, I am willing to pay a fee to investment trust managers who have experience in a particular sector. That is why I would buy this trust for my portfolio today despite the high cost. 

Healthcare sector champion 

Another trust I already own and would buy more of for my portfolio is the Worldwide Healthcare Trust (LSE: WWH).

This trust charges an annual management fee of just under 1%. It is managed by a team of experienced medical professionals who provide unique insight into the global healthcare sector. I am willing to pay for this experience, especially in such a specialist industry. 

As well as paying a performance fee, another downside is that I have no input over the investments chosen. This is both a good and a bad thing. I can outsource the investment decisions to those who know better, but it also means that if they pick the wrong investments, my hard-earned money is at stake. 

Despite this risk, I own the healthcare trust in my portfolio to build exposure to the sector and buy into the experience of its management team. Some of the top holdings in the portfolio include American pharmaceutical and healthcare giants such as Boston Scientific. This unique company manufactures devices for the international medical market. 

The portfolio also contains several speculative names, such as Mirati Therapeutics which is developing cancer therapies. These high-risk, high-reward opportunities are not the sort of businesses I would be comfortable buying myself. I am happy to let the management team at this investment trust take on the work. 

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves owns Worldwide Healthcare Trust plc. The Motley Fool UK has recommended Microsoft. 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.

Inflation rates are soaring across the globe. As such, I’m looking at the best shares to buy now that could protect my capital.

UK prices have risen sharply in recent months and the Bank of England is now forecasting an eye-watering 7% inflation rate by spring 2022. That’s the fastest rise in prices in over 30 years.

In times of rising inflation there are several companies that could perform relatively well. I’d say those that demonstrate pricing power should outperform over the coming months and years. What I mean by that is the ability to pass on price rises to customers. For instance, they might have strong brands or sell sticky products where customer demand remains steady despite higher prices.

Best shares to buy now

In terms of pricing power, I reckon one of the best shares to buy for my Stocks and Shares ISA is technology giant Apple (NASDAQ:AAPL). Despite currently being the largest company in the world, it’s still managing to grow at pace. In fact, it recently reported that its total revenue jumped by 11% to $123.9bn.

As it has an army of loyal fans, it can easily raise prices without significantly affecting demand for its phones, laptops, and digital services.

The iPhone maker even managed to boost its gross profit margin to 44%, despite supply chain challenges that affected so many companies during the pandemic. However, more than half of Apple’s sales comes from its iPhones. Any slowdown in the smartphone market or changes in customers’ upgrade habits could have a material impact on sales growth. That being said, so far it has managed its challenges well and continues to be one of my top picks for the coming months and years.

Pricing power

Another quality company that has pricing power is Relx (LSE:REL). Previously known as Reed Elsevier, Relx is a FTSE 100 business with a market cap of £44bn. It may not be a household name, but that’s because it’s geared towards business customers. Relx is a global provider of analytics and decision tools for professionals. Its largest areas of focus are risk, scientific, medical, and legal sectors.

What I like about this business is its resilience and profitability. Relx offers relatively steady growth and strong cash flow generation. And because it has small, medium, and large customers in more than 180 countries, it offers great diversification. Lastly, its highly specialist tools and products mean that it should also have enough pricing power to keep up with rising costs.

Quality business

Relx does have an exhibitions business that suffered during the pandemic. That has been a drag on performance and may continue to do so if large events suffer any more disruption. Also, with a price-to-earnings ratio of 23, I’d say its valuation isn’t particularly cheap, although that is to be expected for a high-quality business.

Overall, I’d say it’s a good quality business that offers steady growth, pricing power, and even a small but reliable 2% dividend yield. Its last trading update was in October but I’m expecting another one soon where I’d like to see positive trends continue.

Harshil Patel owns Apple. The Motley Fool UK has recommended Apple and RELX. 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.