There are hundreds of penny stocks investors can buy right now. However, there’s one company I already own and would buy more of above all others.
I think this business is hugely undervalued and has a track record of building value for its investors. Moreover, it could report tremendous growth this year, due to sector tailwinds.
Growth ahead
The stock is B.P. Marsh & Partners plc (LSE: BPM). As penny stocks go, shares in this company look expensive. They’re currently trading at around £3.20p.
Still, penny stocks don’t necessarily have to be worth less than £1. Technically, any small public company with a low share price can qualify. With a market capitalisation of £118m, B.P. Marsh is a small public company.
This firm operates as a private equity business. It invests in insurance and financial companies and helps them grow, providing further funding if needs be.
This strategy has produced outstanding results over the past 16 years. Since 2005, the firm’s net asset value has risen from £22m to nearly £150m. That’s a compound annual growth rate of 13%. Over the same time frame, the FTSE All-Share has returned around 6.3%, including dividends.
B.P. Marsh has an international presence and investments worldwide. These two traits are relatively unique among penny stocks. For example, in June 2020, the firm acquired a 30% shareholding in Sage Program Underwriters, which provides workers compensation insurance to niche industries, including ground delivery and field sport sectors, in the US.
Acquired in June for around £200k, this stake was worth £1.2m by January, according to the company. The higher valuation was based on Sage’s explosive growth last year.
In total, B.P. Marsh owns stakes in nearly 20 different insurance brokers and related companies. It also owns a significant stake in wealth manager LEBC Holdings.
The insurance industry is currently experiencing one of the most bullish markets over recent years. Insurance prices across markets are increasing rapidly. This implies the sector is set for a bumper year in 2021.
I think this tailwind could drive the valuations of B.P. Marsh’s investee businesses significantly higher throughout the year. This could lead to further growth in the company’s net asset value and its share price.
Penny stocks and risk
As a small business, there are risks associated with the stock that may not apply to larger companies. The company’s founder owns around 40% of its outstanding shares, which means he has a significant level of control over the corporation.
What’s more, valuing private corporations can be highly subjective. As such, there’s no guarantee the firm will be able to sell its investee businesses for the valuation it has booked on the balance sheet. This could have an impact on net asset value.
Despite these risks, I think this company is one of the best penny stocks to buy now. Its net asset value is 416p, compared to a share price of 320p.
That implies the stock is trading at a discount to the net asset value of 23%. I think this looks too cheap, especially considering the firm’s value creation over the past 15 years. That’s why I’d buy more of the stock for my portfolio today.