I’d invest £5k in these AIM penny stocks

This Fool takes a look at two AIM penny stocks he’d buy to invest in the UK economic recovery over the next few years.

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Some investors might avoid AIM penny stocks because they can seem riskier than blue-chip stocks. However, that’s not always the case. Some AIM companies have multi-billion pound valuations, which puts them in the ranks of the UK’s biggest listed businesses. 

I’m perfectly comfortable investing in AIM penny stocks, and I think there are some great bargains on the market right now. As such, here are two companies I’d buy with an investment of £5k today. 

AIM penny stocks to buy 

The first stock I’d acquire is a recovery play. HSS Hire (LSE: HSS) provides tool and equipment hire and related services.

Usually, the construction market is the first section of the economy to feel the pain in an economic downturn. It was troubled last year, but the sector has quickly recovered. It would also appear as if there is pent-up demand in the market, as prices are rising.

This growth implies HSS is a recovery stock. The company nearly collapsed in 2016/17, and it has been working flat out to return to growth ever since.

The group lost money last year, but management has already reported strong trading for 2021. Earnings before interest tax depreciation and amortisation (EBITDA) in the first few months of the year were ahead of the same periods in 2020 and 2019. 

This stock is not going to be suitable for all investors. It’s a high-risk investment, that’s for sure. Another coronavirus wave could send shocks through the UK construction market. This would hit HSS more than most, considering the company’s fragile state. 

Still, despite this risk, I think the company has recovery potential. That’s why I would invest £5,000 in the business as part of my portfolio of AIM penny stocks. 

Cheap growth 

The other company I’d buy for my portfolio is Vertu Motors (LSE: VTU). 

Once again, this business had a rough 2020, but earnings are projected to rebound this year. For the year ended 28 February 2021, Vertu reported a like-for-like revenue decline of 21.6%. However, in the first two months of the new financial year, the group reported “trading profits at a record level“.

Based on this performance, management is forecasting adjusted profit before tax for the year ending 28 February 2022 in the range of £24m to £28m. That’s compared to £24.6m last year. 

These are just projections at this stage. As is the case with all businesses right now, uncertainty prevails. Another wave of coronavirus could force management to revisit their forecasts and revise targets lower. Moreover, if the economic recovery stutters, consumer confidence may collapse, which would almost certainly reduce the demand for new and second-hand vehicles. 

These risks and challenges are concerning, but I believe Vertu is one of the best AIM penny stocks to buy now, considering its growth potential and current valuation. The stock is trading at a forward price-to-earnings (P/E) multiple of 8.2, which looks far too cheap for me, although it does not necessarily mean this will be a good investment. 

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Vertu Motors. 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.

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