I have recently been looking for penny stocks to buy for my investment portfolio.
Compared to blue chips, penny shares can be riskier investments, but they can also be better growth investments. That is why I like to keep a mix of both blue chip stocks and penny stocks in my portfolio.
Here are two companies I am looking to add to my portfolio at some point in the future and would invest at least £5k in.
Penny stocks I would buy
The first company on my list is Netcall (LSE: NET). This is a software provider that offers intelligent automation and customer engagement software. Netcall has experienced rapid growth like many other tech businesses over the past 18 months.
Based on the firm’s targets, City analysts expect the enterprise to report sales of around £27m for fiscal 2021, up 17.4% from the level reported for the 2019 financial year.
The company confirmed this in a recent trading update. The update also added that cloud computing is now Netcall’s largest division. Recurring revenue from this arm expanded 26% for the year to the end of June 2021.
Netcall also informed the market that the company has a robust order backlog. I reckon this will help support growth in the months and years ahead.
I think the company’s recent growth highlights its potential. That is why I would buy Netcall for my portfolio of penny shares.
However, while I believe the company has potential, I am also aware that with revenues of just £27m, it is a tiny business in the world of technology.
Competitors like Microsoft generate tens of billions of dollars in profits and can spend enormous sums on research and development. It may never be able to compete with these enterprises, which will always be a risk to Netcall’s growth potential.
Rising demand
As well as Netcall, I would also buy Finncap (LSE: FCAP) for my penny stock portfolio. The investment adviser and broker has more than doubled in size since 2016, and I think it has a lot of potential as the demand for wealth management services expands.
As the wealth of the middle class in the UK grows, the demand for wealth management services is increasing. The sector is also experiencing consolidation. Costs are rising across the industry, forcing companies into each other’s arms as they try and push down costs and achieve operating synergies.
This is both a challenge and an opportunity for the group. A larger peer could acquire Finncap. Or it could be squashed by competitors who can offer more for less.
Despite this obvious risk, I am impressed by Finncap’s growth track record. With £5m of net cash on the balance sheet, I think the firm is well funded for its next stage of growth, which could begin to unfold during the next few years.
These are the reasons I would buy the broker for my portfolio of penny stocks right now.