Right, hand me some money to invest in a couple of penny stocks, and then close the stock market for the next 10 years!
It’s easy to convince ourselves we always invest for the long term.
But anything that made it impossible for us to sell for at least a decade… well, that would focus the mind, wouldn’t it?
I’d be tempted to look for investment trusts. But I think that might be cheating a bit.
Bricks and mortar
So, for 10 years, I’d go for Michelmersh Brick Holdings (LSE: MBH). With the construction squeeze, the shares have lost half their value since their 2021 peak.
Topps Tiles and Steppe Cement were other candidates, all suffering the same way. And I don’t think there’s much to choose between them.
I reckon the property sector will pick up again. And when it does, I expect the UK’s makers of bricks and tiles to do well, whoever leads at the sharp end of building and selling homes.
With an 88.5p share price at the time of writing, and a market cap of £86m, Michelmersh only just squeaks under the penny stock limit of 100p and £100m. But that’s good enough.
We’re looking at a forecast price-to-earnings (P/E) ratio of only 9.5, and there’s a 4.8% dividend yield on the cards. Looks like good value.
Most of my favourite penny stocks are related to building or construction in some way. But with a 10-year tie-in, I’d want diversification.
So my second pick is healthcare provider Totally (LSE: TLY), whose shares have had a tough year.
Totally runs the 111 emergency help line, urgent care services, and out-of-hours GP surgeries, among its variety of services.
Healthcare is politically charged. And using the private sector for NHS services could be a bit of a hot potato in the coming years.
But with ever-growing demand, I can’t see any going back now. Will the NHS improve massively in the next decade and be able to take all its services back in-house?
That could throw a spanner in the works. But I put the chances of its happening at close to zero.
Oh, Totally pays nice dividends too, with a forecast yield of 5.1%.
There are other penny stocks that I feel optimsitic about. They include Nanoco Group, which develops nanotechnology, and Zinnwald Lithium.
But I expect those to be volatile, and I’d need the ability to bail out if I saw something go wrong. I could not commit to 10 years.
I like the look of Superdry now too. But 10 years can seem like a lifetime in the fashion business. So that’s out for the same reason.
Penny stock risk
These also-rans hint at the main risk of the two I’ve chosen, and it’s down to the volatility of small companies.
Another economic squeeze in the next decade? A new stock market crash? Tiddlers like these could be at the biggest risk of going bust.
That’s why I’d only ever buy penny stocks as part of a wider, diversified, portfolio.
Alan Oscroft 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.
Motley Fool UK 2023