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A little over a year ago, AIM-listed Mind Gym (LSE: MIND) was a penny stock. But the stock market rally of last November changed its fortunes. It quickly rose above 100p and has consistently stayed there through 2021. It is at more than double those levels now. And this is when the stock has already declined slightly in the last few months. 

Good performance

I think this is an encouraging place for me to explore the merits of the almost-penny stock further. The company, with a market capitalisation of around £170m, is clearly not small. And its latest results show that it is recovering fast from the pandemic too. For the six months ending 30 September 2021, the company’s revenues grew by a massive 67% compared to the corresponding period in 2020. Also, after crashing into losses last year, it has now managed to break even.

I also like the fact that for the last year and a half, which is essentially through the pandemic, there has been only one period of six months when it reported losses. And that was in the first six months of lockdowns in 2020, between March and September. For the past year, it has clocked either a net profit or broken even. 

It is also positive about the future. As per CEO Octavius Black “…we have demonstrated our ability to grow revenues… Mind Gym remains well placed to adapt and prosper in the vast, growing and rapidly evolving corporate change, learning and wellness market”. 

Trading below pre-pandemic levels

Despite this, the stock is yet to go back to its pre-pandemic levels. In early 2020, it had touched a high of 204p, so right now it is still trading some 20% below that level. Considering it progress over this time, I think its share price could rise more.

How much it rises, of course, depends on the pace of recovery. The Omicron variant is still a bit of an unknown, and has sparked off some panic. Additionally, winters make us more vulnerable even with vaccinations. My point is that we should not take it for granted that the pandemic’s market impact might be over. The stock markets are highly reactive these days even to relatively small developments that could potentially portend some serious bad news. 

And Mind Gym is in a segment that could be particularly susceptible to a decline if there is another slowdown. When companies are struggling to make ends meet, professional skill development might be put on the back burner, important as it is, in my view. Besides that, financially, Mind Gym’s bounce back has been relatively strong compared to last year, but not so much compared to the year before, which was the last pre-pandemic year. 

Would I buy this almost-penny stock?

Keeping this in mind, I would like to wait a while before making a decision on whether to buy the stock or not. It is a good stock in my view, but I still think that it could face some challenges in the near future if the economy continues to stay weak. I will keep it on my watch list though, and focus on buying other cheap stocks right now.

Manika Premsingh 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.

If the stock market crashes again I’ll be looking for bargains to buy for my shares portfolio. It’s not just economic-sensitive shares that get sold off when investor confidence sinks. Even companies with highly defensive operations can sink during a broader panic.

Here are three cheap UK shares I’d consider buying if they fall far in price. Each currently changes hands for less than £3.50.

A defensive hero

We have to spend to fill our bellies even when broader economic conditions worsen. This is why I think Devro (LSE: DVO) could be a top stock to buy if it falls amid a broader stock market crash. This cheap UK share manufactures sausage skins that it sells across developed and emerging markets.

I’ve long liked Devro because of the massive investment it has made in fast-growing developing territories, China, in particular. Meat demand in these geographies is tipped to keep rising strongly as personal income levels rise. Indeed, Devro’s latest financials said that it enjoyed strong growth in Latin America, the Middle East, and Africa during the four months to October. I’d buy the business despite the threat posed to its operations by the growing popularity of vegetarian and vegan diets.

Riding the petcare boom

People in Europe are spending more and more money to keep their companion animals happy and healthy. This is what makes Animalcare Group (LSE: ANCR) such an attractive stock in my book. Analysts at the Business Research Company think the global animal medicine market will be worth $85.1bn by 2030. That compares with the $42.5bn it was estimated at in 2019.

I am aware, however, that Animalcare (like Devro) could be hit by the rise of meat-free diets. This is because the business supplies medicines for livestock as well as for pets in Europe. Indeed, a report by Smart Protein over the summer showed that 46% of Europeans had reduced their meat consumption on a 12-month basis. Still, I think the bright outlook for the petcare market offsets this threat.

A consumer goods colossus

I bought Unilever shares because I considered it to be a relatively secure place to park my money. Products like Dove soap, Magnum ice cream, and Domestic bleach give it a market-leading position in ultra-defensive food and household and personal goods markets. I am also considering snapping up PZ Cussons (LSE: PZC) for my portfolio because it shares the same qualities. Brands like Imperial Leather soaps have been excellent sales generators for the business for decades now.

PZ Cussons has a great track record of innovating its powerhouse labels to keep consumers interested. And it has supercharged marketing investment in the likes of Imperial Leather, too. I also reckon the business will benefit from changing consumer attitudes towards hygiene following the Covid-19 outbreak. Despite the threat of rising raw material costs, I think PZ Cussons (like Unilever) could thrive even if the economic recovery runs out of steam.

Royston Wild owns shares of Unilever. The Motley Fool UK has recommended Devro, PZ Cussons, and Unilever. 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.

Stock markets have been a bit challenged recently because of the Omicron variant. But some stocks are still very much on the up. One such example is the AIM-listed investment company Duke Royalty (LSE: DUKE). The penny stock has shown a solid performance over the past year, with a 45%+ increase in share price. 

Duke Royalty gains

Now, it could be argued that many other stocks have also seen big increases over the past year. After all, last year around this time, the stock market rally had just about gotten underway. The real increases in stock prices were seen over the course of 2021. That is true of course, but not all stocks have maintained their increases. 

In fact, because of growing challenges from the withdrawal of policy stimulus, a potential slowdown of the Chinese economy, and high inflation, I can think of more than one stock whose gains from last year’s market rally have been all but wiped out. There are those that have sustained at least some of their gains, of course. To me these stand out, and Duke Royalty is one of them. 

Robust results, dividend payouts

I think there are plenty of reasons why Duke Royalty has been able to to hold onto its share price gains. First, consider the company’s recent results. For the six months ending 30 September 2021, the company reported a huge 78% increase in revenue from the corresponding time last year. And its net profits grew by a significant 50%. 

Next, its outlook is also robust. As per its CEO, Neil Johnson, it is expected to “exceed the market’s expectations for the 12 months ended 31 March 2022”. This could translate into an even higher share price. Companies that perform well consistently can often see a corresponding rise in share price as well. 

It also helps that the company pays a dividend. Its dividend yield is somewhat low at 2.3%, but I am not complaining. If I were to buy the stock, it would be for capital gains, but earning passive income alongside is always a welcome addition. 

Alternative financing

I also like Due Royalty’s business model, which focuses on royalty financing, as the name suggests. This is an alternative financing solution, in which the investor gets a percentage of revenues that a company earns. It might be a relatively new concept, but it is clearly working out well for the company. After struggling during the pandemic last year, it has been able to work its way back into the green now. 

Would I buy the penny stock?

And last but certainly not the least is the fact that it is a penny stock, priced at 45p as I write. And by the looks of it, I am hopeful that it might not remain so much longer if it continues to thrive. There is an ‘if’ there, though. The discovery of the new variant is really holding back recovery and might even send us back into lockdowns. Who knows! Considering that its portfolio companies are most likely to be small businesses, which are more likely to suffer in a slowdown, it could face a setback again. 

But, I think that over the next few years, it could make gains as the recovery takes root. I would definitely consider buying it in 2022.

Manika Premsingh 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.

FTSE 100 incumbent Hikma Pharmaceuticals (LSE:HIK) is a stock I would buy for my portfolio and hold for a long time. Here’s why.

FTSE 100 pharma giant

Pharmaceutical companies haven’t always had the best reputation. This has often resulted in negative investor sentiment. The rising costs of life-saving and essential medicines has contributed to this negativity. I believe Hikma is different from a traditional pharma firm. It manufactures generic, branded, and injectable pharmaceuticals and markets them at an affordable price.

As I write, shares in Hikma are trading for 2,265p. At this time last year, shares were trading for 10% higher at 2,522p. This is not a concern for me. In fact, I see it as a buying opportunity to pick up shares cheaper than usual. Looking back at the Hikma share price over a longer period, it has risen steadily over the past five years.

For and against

FOR: Hikma’s recent and historic performance is positive. I know past performance is not a guarantee of the future but I use it as a gauge nevertheless. I can see revenue and gross profit have increased year on year for the past four years. Recently, a trading update in November revealed guidance for full-year results is on track for another year of growth. 

AGAINST: Hikma is not the only pharma firm in its space where it attempts to manufacture cheaper alternatives to expensive drugs. This competition could significantly affect market share and performance. This would affect shareholder returns to existing investors and potential investors such as myself.

FOR: The current pandemic, as well as ageing population of the world, could benefit Hikma’s performance. Since the pandemic began, the likelihood of seeing a doctor or getting a hospital bed, especially in the UK, has declined massively. This has led many people to turn to over-the-counter options and with economic pressures weighing on people’s pockets, cheaper options are attractive. No matter the circumstances, medicines will always be required. 

AGAINST: The macroeconomic environment and current pressures could affect performance for Hikma and investor returns. Rising inflation and costs could eat away at margins. In addition to this, the labour market and shortage of workers could also affect operations and in turn performance. These issues are affecting other FTSE 100 picks for my portfolio too.

My verdict

I would add Hikma shares to my portfolio at current levels and hold them for the long term. I believe Hikma has a good market share in its sector to continue to grow in terms of performance and provide me good returns as an investor. It also continues to acquire businesses to enhance its offering.

I must keep an eye on risks that could derail progress but most of these are shorter-term issues, such as the macroeconomic issues I noted. At current levels I believe Hikma is a cheap FTSE 100 stock with a price-to-earnings ratio of 14.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

FTSE 250 incumbent Balfour Beatty (LSE:BBY) had a 2020 to forget thanks to the pandemic. The stock looks dirt-cheap right now. But its 2021 performance and outlook have picked up. Should I buy shares for my portfolio? Let’s take a look.

Infrastructure giant

Balfour Beatty is a leading international infrastructure group with offices and a presence in the UK, US, and Hong Kong. It employs approximately 26,000 people and has roots stretching back over 110 years.

As I write, Balfour shares are trading for 245p, which is a 7% drop compared to a year when shares were trading for 265p. More notably, shares have dropped close to 25% since August, when they were trading for 319p. Current macroeconomic pressures seem to have affected the company’s share price and investor sentiment.

For and against

FOR: During the pandemic and since reopening, demand for construction services has been rising. In fact, the UK government has committed to spending £100bn in the next few years on infrastructure. A firm like Balfour Beatty with its experience and huge construction arm should benefit. This could boost performance, growth, and investor returns.

AGAINST: A major issue is that when there is any economic uncertainty, the construction industry is usually affected. It is also worth noting that the construction industry has usually been seen as a low margin sector. With current headwinds such as rising inflation, costs, and the supply chain crisis, market conditions could affect Balfour Beatty’s performance and any investor returns. Other FTSE 250 stocks I am reviewing for investment could suffer at the hands of the same issues.

FOR: Since reopening, Balfour Beatty has shown good levels of performance and I believe these will continue. It released a half-year update back in August that made for good reading. Underlying profit stood at £60m compared to 2020, when it reported a £14m loss. Net cash had increased and its order book was also very close to 2020 levels, which is pleasing to see. I only see this increasing as demand for construction services grows. An interim dividend of 3p was declared, which is higher than pre-pandemic 2019 levels.

AGAINST: Balfour Beatty is in a saturated market and there is lots of competition for the same business and projects. Despite its size and reach, there are still other firms looking to gain the competitive edge and take contracts from it. This could affect performance and any returns I could receive as a potential investor. Competition is something I consider among all my picks.

FTSE 250 opportunity

At current levels, I believe Balfour Beatty is a good opportunity for my portfolio. I would happily add the cheap shares to my portfolio. It has the necessary reach, balance sheet, experience, and fundamentals to navigate difficult waters and return to pre-pandemic levels of performance and growth.

Analysts believe the stock is trading at a forward price-to-earnings ratio of just 12 based on its growth outlook. This is extremely attractive and undervalued in my opinion. It is worth noting not all investors like the construction industry due to its volatility but I am happy to buy shares right now and I expect returns over the long term.

Jabran Khan 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.

Synthomer (LSE:SYNT) shareholders, like myself, have had a bit of a shock today. The Synthomer share price is down 13.56%, which takes it down about 8.5% over a year. The company has reported no news today. The FTSE 100 and FTSE 250 are in the green, so the Synthomer share price crash cannot be blamed on market weakness. Perhaps it’s the entire basic materials sector, of which Synthomer is a part, that is having a bad day? No, some basic materials stocks are up, some are down, it all looks pretty normal there.

What has caused Synthomer to fall 14% today?

According to Reuters, analysts at Morgan Stanley have downgraded Sythomer shares to ‘underweight’ from ‘overweight’. I do not have access to Morgan Stanley’s note accompanying the downgrade. Various sources are reporting that the bank feels supply chain issues will weigh on the company’s ability to ramp up sales, which will weigh on earnings. A bleaker forecasted outlook also made the bank revise its share price target for Synthomer to 400p, which is below the current share price of 418p.

It appears that Morgan Stanley’s analysts have significantly moved the Synthomer stock price. Or, more correctly, investors reacting to today’s analyst downgrade have impacted the share price by selling their shares. Investors are perhaps fearful that Morgan Stanley’s bleaker future will come to pass. They might also be worried about other analysts following suit and issuing their own downgrades on Synthomer stock.

I am not selling my Synthomer shares

I am not rushing to dump Synthomer shares from my Stocks and Shares ISA. There are about 14 brokers covering the stock. Most of the 14 are recommending buying Synthomer. Analysts at Canaccord Genuity reaffirmed their buy rating on Synthomer just a couple of days ago. 

Synthomer is a leading supplier of aqueous polymers. These are bought and used by other companies to make and improve products. As an example, Synthomer’s polymers find their way into latex gloves. Synthomer had a poor 2020, but so did most companies. And things have improved. Synthomer’s trailing 12-month earnings of £217m are currently higher than at any point in the last five years. Its operating margin of 14.5% during the previous 12 months is the best since 2016. All this has happened during challenging times for the global economy. After cutting its dividend during the pandemic, Synthomer has reinstated it. Over the last 12 months, Synthomer has paid 17.3p per share. The trailing dividend yield now is 4.1%. The consensus is that 2022 dividends will be 19.2p, making the forward yield 4.6%. 

Sticking with the consensus

The trouble with reacting to analysts’ reports in isolation is that I would be buying and selling all the time. I would have bought last week and sold today if I behaved like this. Now a series of sell or underweight recommendations and price target cuts will make me think again. But, as of now, this is one analyst note, and the consensus is still overwhelmingly positive.

Perhaps there is something I am missing. Analysts have methods, models, and information sources that are beyond my capabilities. But, the next financial update from the company is not due until next year, when interim numbers are released. For now, that’s what I will be keeping my eye on.

James J. McCombie  owns shares in Synthomer. The Motley Fool UK has recommended Synthomer. 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.

Polymer solutions firm Victrex (LSE:VCT) announced preliminary full-year results this morning. As a consequence, the Victrex share price has jumped in today’s trading so far. Should I buy the shares for my portfolio? Let’s take a look.

The Victrex share price journey

Victrex is a British firm that produces high-performance polymers with a range of real world applications. The polymers designed and manufactured by Victrex are used in smartphones, aeroplanes, cars, medical devices, and oil & gas operations. Victrex’s speciality is the well-known hard wearing polymers known as PEEK. It has advanced technology over the years to become a world leader.

As I write, the Victrex share price is 2,430p. The share price is up 3% today, from 2,354p at the beginning of trading. This is due to positive full-year results announced this morning. Over the past 12 months, the shares have returned 16%, rising from 2,082p to current levels. The shares are up 3% year-to-date. 

FY results and outlook ahead

Victrex’s preliminary full-year results covered the 12 months ended 30 September 2021. The results made for excellent reading in my opinion. Group sales volume increased by 25% compared to last year which was to be expected due to heightened demand caused by reopening. Revenue and gross profit increased by 15% and 16%, respectively. The good results led to Victrex declaring a dividend of 109.56p per share. This is made up of a regular dividend and special dividend worth 50p. It is worth noting the dividend has surpassed pre-crash levels and gives Victrex a yield of 2.5%.

I can understand why the Victrex share price has jumped today based on such impressive results. The outlook ahead also seems promising. It reported good sales progress in all sectors as well growth plans. For example, progress has been made on one of its new manufacturing facilities in China. Victrex’s growth plans will be supplemented by a robust balance sheet. It can call on some of the £99.9m cash it has available.

Risks and my verdict

Despite the positive results, Victrex does have risks. Firstly, macroeconomic pressures could affect progress, growth, and performance. Rising inflation and costs could hinder margins and performance, especially if it cannot pass these rising costs on to its customer base. This could affect further dividends. Secondly, the pandemic halted progress in the past. New variants, such as the Omicron variant, could lead to a slow down of orders and growth.

Overall, the Victrex share price looks a bit expensive right now with a price-to-earnings ratio of 38. I do like the company and its place in its sector. It has also returned close to pre-pandemic levels of performance as well as paying a dividend that would make me a passive income. I would add shares to my portfolio if there were a better entry point to buy. For now I will keep a keen eye on developments.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Victrex. 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.

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