I’m scouring UK stock indices to find the best cheap shares to buy for my Stocks and Shares ISA. Here are a couple of quality penny stocks that have caught my eye.
Healthcare hero
Today, Venture Life Group (LSE: VLG) shares go for 68p a pop. It’s a penny stock I think could make me a lot of money as its transformation strategy clicks through the gears. Venture Life manufactures non-prescription healthcare products such as Dentyl mouthwashes, Procto-eze Plus haemorrhoid creams and Myco Clear fungal nail treatments.
Acquisitions are a key part of the UK share’s growth strategy and last January it made the transformative takeover of PharmaSource BV to boost its product ranges as well as worldwide distribution.
Venture Life has also invested heavily to increase production at its Biokosmes facility in Northern Italy. Capacity here now stands at 250,000 units versus 130,000 previously.
Encouragingly, the UK healthcare share has plenty of financial clout to keep investing in the business and pursuing its M&A agenda. Indeed, a £36m share placing at the end of last year gave it the strength to acquire women’s health and diabetes product specialist BBI in June and a series of oncology support products from Helsinn Healthcare earlier this month.
I’m confident this stock’s aggressive approach to acquisitions could light a fire under long-term profits growth. But remember that an M&A-led growth strategy can be extremely risky. Meanwhile, problems like unexpected costs, underwhelming revenues, and paying over the odds for an asset can be common problems that ultimately damage shareholder returns.
A penny stock that’s too cheap to miss?
XLMedia (LSE: XLM) is another UK penny stock I’m looking closely at for my ISA today. This 58p share operates thousands of websites covering the fields of gambling, sports betting and (more recently) personal finance. And it provides digital marketing services and data to companies in these arenas. All three sectors are growing quickly and this provides plenty of opportunity for the company to exploit.
I also like this UK share because it offers excellent value for money at its current price. City analysts think annual earnings here will rocket more than 600% in 2021. This leaves the company trading on a forward price-to-earnings growth (PEG) ratio of 0.1. A reminder that any reading below 1 suggests a company could be undervalued by the market.
XLMedia is speeding up restructuring efforts in a bid to better address its vertical markets and create a more agile machine. It’s a drive that’s expected to bring down costs by reducing the global workforce by around 15% too.
Now this stock operates in markets which are subject to intense regulatory scrutiny. And this has the potential to take a bite out of earnings if the legal landscape changes. Still, in my opinion, this risk is more than reflected in XLMedia’s ultra-cheap valuation.