3 penny stocks to buy in July
Penny stocks can offer great rewards for nimble investors like me. That said, higher potential rewards come with higher risk. Even so, I would consider these three penny stocks to be part of my Diversified Stock and Stock ISA.
The first penny stock I would buy in July is Vertu Motors (LSE: VTU). It is the fifth largest car retailer in the UK with a network of 149 outlets across the country. It operates several dealer brands, but the one that strikes me the most is Bristol Street Motors.
He provided an update recently where he highlighted continued solid exchanges, driven in particular by the used car segment. It’s nice to see that he expects the current trends to continue. This should bode well for the Vertu Motors share price, in my opinion.
That said, Vertu has highlighted an industry problem as global chip shortages cause supply issues for new vehicles. While this is a concern for new car sales, it is also a key reason for robust used car sales. And that keeps used car prices high, helping Vertu even more.
Risks also remain regarding disruptions related to Covid-19. There is still a lot of uncertainty about how consumers will behave once the holiday payments are over.
Overall, it’s a cheap penny stock, in my opinion. It trades on a price / earnings ratio of just 7 times expected earnings. I like the fact that it offers growing profits on top of a 3.6% dividend yield.
Another penny stock in the automotive industry
For many of the same reasons as Vertu, I would also consider Pendragon (LSE: CEO). It’s another car dealership. Unlike Vertu’s offering, Pendragon focuses on specialty and luxury franchises. He is also enjoying solid trading conditions.
In its recent update, it highlighted a favorable environment in the used vehicle market. In particular, “supply constraints and pent-up demand have increased vehicle prices, resulting in higher margins.” That seems alright to me.
A word of warning, however. As with Vertu, uncertainty persists due to Covid-19 restrictions and vehicle supply constraints. Additionally, Pendragon notes that there may be some restriction in supply later in the year, with “vehicle ordering times have already been extended”.
But I think broker upgrades are likely and there could be more upside for this penny stock.
A riskier penny stock that I would consider buying for my ISA in July is Jubilee metals (LSE: JLP). It is supported by the growth in prices of platinum group metals (PGMs). In particular, it is highly exposed to copper prices.
The outlook for copper looks bright, in my opinion. Global momentum towards green energy and vehicle electrification will require significant investments in renewable energy infrastructure. Much more copper is used in an electric car compared to an internal combustion engine.
Additionally, copper prices could be supported by post-pandemic economic stimulus and infrastructure spending.
It should be noted that while the long-term demand factors for copper look promising, penny stocks in the mining industry can be at high risk. Metal prices are volatile and can fluctuate for a number of reasons. This is a significant potential risk to the profits of Jubilee.
Overall, I would consider buying Jubilee Metals for a small portion of my ISA.
Harshil Patel has no position in any of the stocks mentioned. The Motley Fool UK recommended Pendragon and Vertu Motors. The opinions 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. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.