Business & Investment

I think these two penny stocks have been beaten by bargains

I like to own a selection of penny stocks in my portfolio. This is because I think there are some really fascinating bargains to be made in this section of the market.

That said, small caps can make a lot of money, but they can also incur big losses. Therefore, this strategy is not suitable for all investors.

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Nevertheless, I am happy to own a penny stock in my portfolio. With that in mind, here are two such companies I buy today.

Resuming bargains

The first company Card factory (LSE: Card).. The retailer’s stock has lost about 50% of its value since the beginning of May. That is despite the significant economic growth during this period.

That’s why I believe there is an opportunity here. According to Card Factory’s six-month interim results up to the end of July, sales were low, but increased 16% year-on-year.

Still, this group is incredibly generating cash. Operating cash flow in the first half was £ 36m, reducing borrowing by 33%.

The company’s strong balance sheet and cash generation should help meet its ambitious goal of generating approximately £ 600m in annual revenue by fiscal year 2026. By comparison, first half sales totaled £ 117m.

To achieve this goal, management is investing more in the company’s online business and retail partnerships. There is no guarantee that Card Factory will reach this growth goal, but it is encouraged by its cash generation and management expansion plans.

So I would buy this beaten penny stock for my portfolio today. As we move forward, the challenges we may face include further restrictions on the coronavirus and increased costs, which can reduce profit margins.

Hospitality penny stock

Another strain that seems to be punished despite improved basic performance Marston’s (LSE: MARS)..Since March of this year, the economy has Almost completely restarted..

According to the latest trading update, Marston’s sales have recovered to 2019 levels. The group’s report for the quarter ended October 2nd shows that overall portfolio sales are 2% above 2019 levels.

I think this is a good sign for the rest of the year. The company still has a way to go back to 2019 sales and profitability levels, but it’s heading in the right direction.

That’s why I bought this company for a portfolio of penny stocks today, given its growth and recent stock performance.

Challenges that can delay the recovery of pub operators include rising labor and material costs. The turmoil from the HGV crisis can also be a headache.

In addition, the group has accumulated considerable debt over the last 18 months (borrowing totaling £ 1.2 billion in early October), which could become a significant debt if interest rates rise.

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Rupert Hargreaves does not have a position in any of the listed shares. The Motley Fool UK recommends Card Factory and Marstons. The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by exploring different insights, Better investors than us.

I think these two penny stocks have been beaten by bargains I think these two penny stocks have been beaten by bargains

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