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2 under-the-radar penny stocks I think have big potential

Stacks of coins

When identifying a penny stock, people have different definitions. However, I’d call a business a penny stock if the market capitalisation is £100m or less, with the share price trading for under £1. These are clearly smaller companies. In this regard, there’s sometimes the potential for large share price gains, given the scope for company growth. Here are two that I don’t think are getting enough attention.

A property penny stock

The first firm I’m considering buying shares in is Foxtons (LSE:FOXT). The estate agent has a market cap bang on £100m, with a share price of 32p. Over the past year, the stock is down 27%.

When I think of property-related stocks, I often go to Rightmove. Or I consider buying a traditional homebuilder, with several options available to me in the FTSE 100. Yet my radar never really picks up on alternatives such as Foxtons.

The company has a natural correlation to the fate of the property sector. This is one of the reasons why the share price is down in 2022, given the fact that higher interest rates and slowing growth puts pressure on property prices and mortgages.

However, I think the stock is good value at current prices. The Q3 results showed that revenue for that period was up 25% on the same quarter last year. The company is seeing strong demand in the lettings side of the group. This makes sense. Even if people can’t afford to buy, they still have to rent and live somewhere.

I admit that the focus around central London property could be more of a risk than a benefit. Yet as far as property stocks go, the lean operating model is appealing to me. I’ve put it on my December watchlist.

An interesting REIT to consider

The second option I like is Capital and Regional (LSE:CAL). With a share price of 53.5p and a market cap of £89m, it fits the penny stock tag.

The business is a real estate investment trust (REIT) that focuses on UK retail and leisure opportunities. It has a portfolio worth around half a billion pounds, mostly in community shopping centres. By picking up rent and leasing payments, the business can generate an income that gets paid out to investors via the dividend.

The share price has dropped by 15% over the past year. A large part of this was due to the halting of the dividend payment due to the business posting a loss as it came through the pandemic. However, I think now is a good time to buy the stock.

In the half-year results from late summer, adjusted profit jumped 87% to £5.8m from the same period in 2021. With stronger occupancy and rent collection, I think the REIT could be a good addition to my portfolio.

I’m adding both penny stocks to my watchlist for December, to consider buying when I have free cash.

The post 2 under-the-radar penny stocks I think have big potential appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.