A precious metals powerhouse

Mining for raw materials is rarely plain sailing. Exploring, developing, and then extracting metals can throw up a wide variety of problems. These, in turn, push up costs and hammer revenues. The danger is particularly high for small-cap companies which operate on much tighter budgets than industry behemoths like BHP Group or Rio Tinto.

That being said, I think penny stock Sylvania Platinum (LSE: SLP) could still be a top stock for me to buy now. Okay, this platinum group metal (or PGM) producer has itself suffered from lower ore grades and increased costs of late. But the company trades on a forward price-to-earnings (P/E) ratio of below four times. This suggests to me that, at current prices of 98p per share, Sylvania’s valuation more than reflects such problems and their potential impact on future profits.

Secondly, Sylvania has no debt on the balance sheet and a decent cash pile with which to continue working at its world-class South African assets. This puts it in a much stronger position that some other small-cap mining stocks. And finally, I believe that PGM prices should remain pretty strong. The car industry is gobbling up increasing amounts of the metals for which they are used to reduce emissions. Concerns over runaway inflation should also support prices for some time yet as central banks keep rates locked around recent lows.

A penny stock I’d buy for the CBD boom

Zoetic International (LSE: ZOE) is another great penny stock I’d happily buy for the years ahead. This is despite the highly-regulated environment in which the cannabidiol (or CBD) oil product manufacturer operates in. Recent law changes around the use of the drug for medicinal purposes have turbocharged demand for UK shares like Zoetic. But the topic remains a contentious one and any u-turn by regulators could sink its share price.

Still, for the time being, the regulatory outlook is ultra encouraging for CBD specialists such as this. Legislators are taking increasing notice of studies showing the medicinal benefits of using cannabis-based products to treat a range of ailments. In fact, research is showing that CBD products can effectively treat a growing list of conditions. This is further encouraging lawmakers to loosen rules and boosting the sales opportunities for healthcare stocks like Zoetic International.

Today this penny stock (which is set to change its name to Chill Brands) trades at around 37p per share. I think its retreat back below the penny stock limit of £1 in recent months presents me with an attractive dip-buying opportunity.

A penny stock for the ages

Britain’s has been a top destination for overseas students for centuries. In fact, latest data shows that UK universities are perhaps more popular today than ever before. According to the Higher Education Statistics Agency the number of non-UK students enrolled in institutions jump 12% in the 2019/2020 academic year to a record 556,625.

It seems that the long-term outlook for accommodation provider Empiric Student Property remains quite robust then, at least in my opinion. And while bookings for the upcoming academic year are lower than they would be during this point in previous cycles, activity is picking up as pandemic restrictions are lifted. I think this penny stock is a great growth share to buy, even if its more conservative approach to acquisitions could see it lose business to rivals.

Looking good

The decision to begin making hygiene products has helped save Creightons’ bacon and keep revenues and profits rising during the Covid-19 crisis. Indeed, financials this week showed sales rose 29% in the 12 months to March, to £61.6m. This was thanks to a £14.6m contribution from newly-launched ranges of soaps and similar hygiene-based goods.

I think things are looking up for the company’s traditional beauty and haircare products too, as government restrictions ease and people get out and about again.

It’s also worth noting that Creightons has its eye on expansion. Management said cash generated by the group’s growth has put it in “an excellent position to take advantage of any new opportunities that may arise,” adding it was “open to the acquisition of new brands with a digital presence.”

Remember though, that a return to lockdown conditions could drive Creightons’ recovery off the tracks.

A top value stock

Coats Group manufactures zips, trims and threads which are essential components in the clothing industry. This puts the penny stock in the box seat to ride the rebound in fashion sales as people return to all forms of socialising.

Indeed, revenues at the business rocketed 37% year-on-year in the first six months of 2021 to $732m, due to lockdown restrictions easing. However, Coats has a lot of debt on its balance sheet ($168m worth as of June) and this could cause a problem if demand for its products sinks again. Still, at current prices, I think the business could be too cheap to miss. It trades on a forward price-to-earnings growth (PEG) ratio of just 0.2.

Medical marvel

I think Zoetic International could be one of the best penny stocks to buy if one is concerned about the ongoing public health emergency. This is because the company manufactures and then sells cannabidiol (or CBD) oil products in the US and Europe to people suffering from medical ailments. And so, like any drugs developer, it doesn’t have to wring its hands worrying about how economic, political or social crises will damage its top line.

People will still move heaven and earth to get their hands on its treatments. However, it’s important to remember Zoetic operates in a highly-regulated industry. Thus, the risk of revenue-smacking law changes to the sale and usage of cannabis products are high.

Riding the CBD wave

According to the Centre for Medicinal Cannabis (CMC), six million people in the UK have tried CBD. Unlike the illegal form of marijuana, it doesn’t contain tetrahydrocannabinol (THC) – that’s the part responsible for the ‘high’ from the plant. CBD is marketed as having health and wellness benefits.

Zoetic describes itself as a premium CBD company. It creates, markets, and sells CBD-based products such as oils, soft gels, and cosmetic products. Its most successful product is an alternative tobacco brand called Chill, which is making huge strides in the US market. Zoetic recently signed a landmark deal with the Asian America Trade Association, which represents convenience stores based in the US, for promoting its Chill brand.

Among the CBD penny stocks out there, I am reviewing Zoetic due to its position in the market and achievements. It has won multiple awards for its products and is recognised worldwide for its product quality.

Share price and performance

As I write, Zoetic shares are trading for 51p per share. In the past 12 months, its share price has increased by over 500%. This time last year shares were trading for 8p per share.

I believe the rise in share price has been triggered by Zoetic’s alternative tobacco brand Chill. In a trading update in October 2020, Zoetic announced successful trials of Chill products prompting a share price rise.

In its most recent trading update in April, it confirmed by July 2021 Chill products will be on sale in 3,500 stores. Additionally, Chill branded products will be entering the UK market for the first time and being made available to consumers. Furthermore, new products such as anti-ageing creams and other innovations were in the pipeline as well as new distribution deals internationally. It all sounds really promising but what is actually selling? Well, it seems not a lot just yet.

Should I invest in CBD penny stocks?

I admit as a penny stock Zoetic seems to be doing the right things from a product perspective. There are promising signs. But, there are lots of risks. Firstly, Zoetic only moved towards being a wholly CBD focussed firm in 2019. Prior to that, it was an oil and gas business called Highlands Natural Resources. This resulted in a loss of a revenue stream and therefore financials have not been the most impressive to date. For example, between April and September last year, only £55,000 worth of goods were sold.

Next, Zoetic has had to use credit facilities to keep the lights on in the past. It opened a credit facility worth £35m with LDA Capital but has since managed to cancel this due an uptake in subscriptions and growth.

Finally, the overall promotion and medical cannabis market has been hampered by the lack of clinical evidence showing its effectiveness in treating various conditions. This will cause volatility in the market and performance of any stock, especially a penny stock, so this is a big risk.

Investing in CBD penny stocks is not for me. I would not invest in Zoetic today as I feel it is too risky and perhaps too early. Having promising products does not pay the bills, sales do and currently Zoetic is unprofitable. I will keep an eye on developments, however.

So what caused this sudden growth? And Should I be adding this business to my portfolio?

The rising Zoetic (ZOE) share price

 Zoetic is a producer of cannabidiol (CBD) oil products and operates within the medical cannabis sector. It has two brands under its name. The first is Zoetic, which targets the health & wellness segment of the market. These products include soft-gel capsules, oral tinctures, massage oils, as well as cosmetic items.

It’s hardly the only brand in the space. But it has managed to distinguish itself by being nominated and winning multiple awards for its product’s quality. As a result, Zoetic already has started building some reputation and pricing power. A promising sign in my eyes.

The management team is now leveraging this reputation to launch its second brand called Chill. After a long testing period, these products have proven to be a viable alternative to tobacco-based items. And since they are free from THC, nicotine, and heavy metals, the products are a significantly healthier option for individuals who smoke or chew tobacco.

From what I can tell, Chill is what triggered the rising ZOE share price. A trading update was released in October 2020, which announced the success of its trial phase. Over the next couple of months, the business began distributing these new products among a growing collection of reputable US stores. Based on the most recent progress, Zoetic now expects these items to be stocked at more than 3,500 US stores by July 2021. It also intends to begin launching Chill within the UK as well this quarter

The risks that lie ahead

As promising as these launches are, the company still has a lot of challenges to overcome. The firm only recently pivoted into CBD products, and in the process, lost its original revenue stream (it was an oil and gas business called Highlands Natural Resources, and decided to switch to CBD in 2019). Zoetic is already selling online. However, between April and September last year, only £55,000 worth of goods were sold.

Since the firm’s revenue stream is currently quite restricted, it remains unprofitable. And with limited information as to when that might change, the company is dependent on external financing to keep the lights on. Just last month, it opened a new £35m credit facility with LDA capital. And in my experience, a leveraged and unprofitable business carries quite a bit of risk.

The bottom line

I’ve previously explored other companies trying to penetrate the medical cannabis sector. But Zoetic does seem the most promising so far, thanks to its award-winning line of premium products. And if the launch of Chill meets expectations, I believe the ZOE share price can continue to climb even higher over the long term.

Having said that, I think it’s still too soon to invest. There remains quite a bit of uncertainty regarding the sales performance of its new products. And so, until more financial data becomes available, I’m keeping the business on my watch list for now.

Of course investors don’t have to buy UK shares before the end of 5 April. But do they need to have sunk their money inside the tax wrapper before that time. Here are three penny stocks I’m thinking of buying with my just-in-time contribution:

A penny stock for cannabis bulls

I think investing in the medical cannabis market could make UK share pickers a lot of money. Demand looks set to soar as laws surrounding its usage begins to loosen. I also expect sales of the drug to increase as the number of health conditions it is used to treat grows. Don’t just take my word for it though. Researchers at Valuates Reports reckon the global medical cannabis industry will be worth $30.5bn by 2026. This is up from $12.9bn in 2020. All this explains why I think investing in Zoetic International (LSE: ZOE) could be a good idea. The business manufactures cannabidiol (or CBD) oil products which it sells in the US and Europe. Be warned, though, that this industry is highly regulated. Law changes could therefore cause serious operational problems that could knock profits.

Screen star

I’m also thinking about buying Ocean Outdoor (LSE: OOUT) for my Stocks and Shares ISA. I think this penny stock — whose outdoor screens allow businesses to advertise their products across Northern Europe  — could soar in value in the very near future. This is because the amount companies spend on advertising rises strongly during the early stage of economic recoveries. I think that the huge amounts Ocean Outdoor has spent to expand its geographic footprint should pay off handsomely. But remember that such an aggressive strategy is high risk and the share price could suffer if trading in new markets fails to live up to expectations. The business also has to compete with other forms of outside advertising and other media categories including newspapers, mobile Internet, and television. This could result in a lowering of its prices on top of rising costs.

African Queen

Another penny stock on my radar today is Old Mutual (LSE: OMU) I bought shares in Prudential last year because rising wealth levels, strong population growth, and low life insurance product penetration in Asia are likely to result in huge profits in the years ahead. Old Mutual operates in sub-Saharan markets in Africa where the same conditions are in play. And this 175-year-old company has the clout to make the most of this enormous opportunity. That said, companies of this nature always run the risk that larger-than-expected claim costs can see them fail to be covered by the premiums it’s charged. And this can have a devastating impact on the bottom line.

Alaskan explorer

88 Energy burst onto the scene when it completed a successful well on Alaska’s North Slope early this year. Icewine #1 was an unconventional well designed to test the HRZ shale layer, the well was a success and has helped the company de-risk the play across its acreage. Following the well the company went to equity markets and raised A$25m, this money is being used to shoot 750km of 2D seismic over its acreage and to design the next well on the block, Icewine #2. The company says the second well is “expected to include a horizontal section and a multi stage frac and, subject to permitting, is planned for spud in Q1 2017″. This second well will be key in proving up the commerciality of the discovery and will move the company one step closer to monetisation. 

US minnow

After a reverse takeover last year, Highlands Natural Resources shares were readmitted to trading on 2 February this year and haven’t looked back. The company owns 75% of DT Ultravert which is an exciting re-fracking system with huge industry potential. The company has impressively signed up industry heavyweight Schlumberger and Calfrac Well Services Corp as licensed partners of the system to help it test the technology. It has also been expanding its footprint in North Dakota, USA, and now owns close to 4,000 acres of oil exploration licenses in the area. Along with this, it owns a potential uranium play in Utah and expects to commission a competent persons report in the coming months. Obviously at this point, all of its projects are highly prospective and may not come to anything but investors are clearly backing the company to be a success. 

Game over?

Once a darling of the AIM market Gulf Keystone is now in dire straights. The Kurdistan-focused producer operates the giant Shaikan field but its balance sheet is providing investors with headaches. Recently the company struck a standstill agreement with bondholders to buy time but time is running out fast. Due to the overloaded balance sheet the company is meant to pay back a whopping $575m of bonds next year. This means it needs a huge refinancing package which is likely to wipe out existing equity holders completely. This would be a sad ending for what was one of the market’s favourite stocks. 

These three stocks are obviously very risky and every investor should tread with care. However, if any of these companies can deliver and maximise potential then we could see share prices rocket higher.