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The recent stock market crash is feeling uneasy right now. But they can provide great buying opportunities for smart long-term investors. Today, I’m looking at two penny stocks that I think should outperform when sunny hours return.
Foxton ready for recovery
estate agency foxton (LSE: FOXT) is a major player in the London housing market. However, the business has gone through a rough patch in the last few years and has not performed as well as I had expected.
Its share price has declined by more than 80% since its 2013 breakout. But last year’s results showed a welcome increase in profits and I think the group is well positioned for a strong turnaround.
One significant change is that the company has increased its exposure to the lettings market, which now generates 65% of revenue. Its significance is that rents are generally recurring and non-cyclical.
While the upfront fee available from home sales can be high, this sector of the market is heavily cyclical. As we’ve seen over the past year, the housing market can slow down dramatically from time to time.
Foxton also has a new Chief Executive Officer. Guy Gittins is back in the business where he started his career 20 years ago. A hugely experienced London estate agent, he is determined to invest in rebuilding and developing the brand.
From a medium term perspective, I think buying at current levels may make sense.
a market-leading business
My next choice is Kettle Control Maker Strix (LSE: KETL). This little-known business is the world’s largest producer of kettle safety controls – the part that shuts your kettle off when it boils.
Its market share for these spares is around 50%. This reflects in its trusted relationships with many manufacturers. The only problem with this is that it doesn’t leave much room for growth.
To try to solve this problem, Strix has been buying smaller companies in related sectors, such as hot water faucets and water filtering. The company has also built a new factory in China
Unfortunately, these moves left the company with a lot of debt. The group’s financials had also taken a turn for the worse due to supply chain problems and the Covid disruption in China last year.
A dividend cut is also expected in this month’s results, though broker estimates suggest the stock could still yield 6%.
I’m not sure that Streax’s recent acquisition will ever be as profitable as its core business. One risk I think is that some of this expense will eventually be written off.
However, I am encouraged by the recent change in management of the company. In an update in January, Strix said it was not planning any further acquisitions or factory construction.
Instead, the company wants to return to its “Core Operating Model” Being highly cash productive.
If chief executive Mark Bartlett can deliver on this promise to shareholders, I think shares could become cheap at current levels. If I were looking for a small-cap value stock to buy today, I’d definitely consider Strix.
The post 2 Penny Stocks I’d Buy Now for the Next Bull Market appeared first on The Motley Fool UK.
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Roland Head has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights makes us better investors.
Motley Fool UK 2023
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