With this in mind, here are two shares trading below £1 that I’d be willing to buy while the chips are still down and before markets truly begin rallying.

Coats

Industrial thread company Coats (LSE: COA) doesn’t exactly get the pulse racing but it’s a world leader at what it does. And despite the tough economic times we’re in, business doesn’t appear to be suffering too much either.

Back in May, the company reported a 20% jump in sales growth over the first four months of 2022. Importantly, the company stated that actions taken on pricing and productivity had managed to “offset inflationary pressures in the supply chain“. This has had a knock on effect of supporting margins at both its Apparel & Footwear and Performance Materials divisions. That all sounds encouraging to me and may help to explain why the shares are down just 3% year-to-date.

Like all businesses, Coats is remaining “vigilant of potential macro-economic conditions“. And, yes, there’s always a chance that this baby could get chucked out with the bathwater. That said, I think the shares already look good value with a price-to-earnings (P/E) ratio of 11.

Coats also has PEG (price/earnings-to-growth) ratio of just 0.6. While there can be no guarantees when it comes to investing in anything, this suggests to me I’d be getting a good deal based on the potential growth that lies ahead.

At least some of the later may come from the company’s latest addition. Yesterday, it was announced that Coats will acquire global heel counters and insoles supplier Texon. Earnings accretive from the off, this addition should “deliver attractive high single digit growth in a fragmented market” and strengthen the company’s presence in the footwear/ath-leisure space.

There’s also an extremely secure-looking 2.6% dividend yield for good measure.

Tritax Eurobox

A second penny stock I’d buy today is one I’ve had an eye on for quite some time now. Tritax Eurobox (LSE: BOXE) is the lesser-known sibling of £3.5bn cap, UK-focused Tritax Big Box. Like its bigger brother, the former specialises in developing and managing logistics assets for customers.

Eurobox shares are down over 20% year-to-date, no doubt influenced by concerns of rising inflation and lower spending. The latter means potentially reduced earnings for the company’s clients. However, I suspect this will prove a temporary blip. Simply put, the ongoing migration of consumers online means warehouses of the sort that Eurobox provides will be in growing demand.

One snag with Eurobox shares is that they still look expensive, at least initially. A P/E of almost 24 looks pretty steep considering the economic headwinds. However, the company also has a PEG of just over one. So, again, I might actually be getting a decent amount of bang for my buck.

Being a real estate investment trust (REIT) means there’s a passive income stream on offer too. A yield of 5.5% as I type looks like adequate compensation for being asked to wait for a recovery.

Thread manufacturer

As a quick introduction, Coats is a leading thread manufacturer for industrial and consumer use. It creates and sells thread, knitting yarns, and other related products such as zips, used in the apparel and footwear industry. Coats currently has a sales presence in over 100 countries throughout the world.

It is worth remembering a penny stock is one that trades for less than £1. So what’s happening with Coats shares currently? As I write, they’re trading for 66p, which is the same as at this time last year. The shares have pulled back since the turn of the year, by 8% from 72p to current levels. I believe this is due to macroeconomic and geopolitical headwinds.

To buy or not to buy

So what are the pros and cons of me buying the shares?

FOR: Coats has a long history of trading, an impressive growth story to date, and is a leading business in its respective industry too. It also has a good track record of performance. I am aware that past performance is not a guarantee of the future, however. Looking back, it had grown revenue and profit for two years before the pandemic struck in 2020. It bounced back in 2021 and levels exceeded pre-pandemic trading.

AGAINST: Macroeconomic headwinds could have an impact on Coats’ performance and returns. Soaring inflation, the rising cost of living, and a global supply chain crisis could impact it. Rising costs could impact profit levels, which in turn could affect overall performance and shareholder returns. The supply chain crisis could affect its worldwide operations, in turn, affecting sales and performance.

FOR: At current levels, Coats shares look decent value for money on a price-to-earnings ratio of 12. Furthermore, the shares would boost my passive income stream through dividend payments. Its current dividend yield stands at 2.5%. This is higher than the FTSE 250 average of just less than 2%. I am aware that dividends can be cancelled at any time at the discretion of the business, however.

AGAINST: A shorter-term risk to consider is demand for Coats’ products as macroeconomic issues have caused a cost-of-living crisis here in the UK and soaring inflation in other countries. There may be less demand for apparel and footwear. This could result in Coats’ industrial customers ordering less product, which could affect performance and returns.

A penny stock I’d buy

I think Coats is a great business with an excellent track record to boot. The shares are trading at a decent price and also pay a dividend. Its worldwide presence fills me with confidence that it can continue to grow and provide consistent returns. I would add Coats shares to my holdings for returns and growth.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

BAE Systems 

What it does: BAE Systems is one of the world’s leading defence companies and a major supplier to UK and US armed forces.  

By Royston Wild. Defence giant BAE Systems (LSE: BA) is the best-performing FTSE 100 share over the past six months at the time of writing. 

In fact, it’s risen around 40% in value in the year to date. And more recently its share price has remained rock-solid whilst other UK shares have toiled in this new bear market. 

I think the Footsie firm remains an ideal growth stock for me to buy today. Soaring inflation and growing recessionary risks pose a threat to more cyclical stocks. Defence stocks like BAE Systems, on the other hand, can expect trading conditions to remain robust in the near term, meaning investor selling should be kept to a minimum. 

Government defence spending is something that remains broadly resistant to wider economic conditions. War is a constant of history and countries have to be prepared to defend themselves at a moment’s notice. 

This explains why City analysts think BAE Systems’ annual earnings will rise 7% in both 2022 and 2023. This is despite the threat that supply chain problems pose to its operations. 

Royston Wild does not own shares in BAE Systems. 

Experian

What it does: Experian provides credit data to lenders to allow them to assess the creditworthiness of potential borrowers.

By Stephen Wright. I’m keeping things simple with my top UK growth share for July. 

In my view, a good growth stock is one that grows. Specifically, it grows its earnings and then uses those earnings to generate more earnings. This is exactly what Experian (LSE:EXPN) does. 

The company’s strong growth is protected by a high barrier to entry. Experian has a huge database of credit information that it bases its credit scores on, and this would be difficult for a smaller competitor to emulate.

Furthermore, most mortgages require a tri-merge report. Experian’s credit report is part of this, which makes me think that the business will continue to do well going forward.

I’m impressed by the company’s growth and I think that shares trade at a reasonable price at the moment. As such, I’m looking at adding to my investment in Experian stock in July.

Stephen Wright owns shares in Experian.

Coats

What it does: Coats is the world’s leading industrial thread manufacturer. It operates in sectors including fashion, energy and telecoms.

By Roland Head. Thread maker Coats (LSE: COA) is a business that many investors have never heard of, even though we probably all use its products.

This British business has been trading for more than 250 years and operates in 50 countries, with annual sales over $1.5bn.

Analysts expect Coats’ earnings to rise by 13% this year and by 17% in 2022. Despite this positive outlook, the shares currently trade on just 10 times forecast earnings. I reckon that’s too cheap for a business which generated a 21% return on equity last year.

I admit that Coats has disappointed the market before. Demand for some of the company’s products could also fall in a recession.

However, I think the diversity of Coats’ customers should provide protection against localised problems. I’m also impressed by the changes being put in place by CEO Rajiv Sharma. I expect strong growth over the next few years.

Roland Head owns shares in Coats.

JD Sports Fashion

What it does: JD Sports Fashion is a retailer of athletic footwear and athleisure clothing that operates globally.

By Edward Sheldon, CFA. Shares in JD Sports Fashion (LSE: JD) have taken a huge hit in 2022, and I think this has presented me with a great opportunity to buy the growth stock in July.

JD’s full-year FY2022 results, posted in June, were very encouraging to my mind. For the 52 weeks ended 29 January 2022, revenue came in at £8.56bn, up 39% year on year. Meanwhile, adjusted earnings per share (EPS) jumped to 12.8p versus 6.4p a year earlier.

Looking ahead, I’m not expecting growth to continue at this pace. However, in the long run, I expect demand for casual attire to boost revenues and profits significantly.

One risk to consider here is a pullback in consumer spending due to the cost-of-living crisis. This could hit sales. However, with the stock now trading on a forward-looking P/E ratio of under 10, I think a lot of this risk is priced into the stock already.

Edward Sheldon has no position in JD Sports.

Future

What it does: Future is a massive media conglomerate serving digital media on a variety of topics to a global audience of over 300 million people.

By  Zaven Boyrazian. Investing in a media publishing house may sound old fashioned. But it’s proven to be a lucrative move for shareholders of Future (LSE:FUTR). The company is one of the largest media groups in the world, with over 250 websites under its umbrella, including TechRadar, Country Life, and its recently acquired Who What Wear. And over the last five years, the stock is up 700%!

Revenue is primarily generated through advertising and subscriptions. But with more service platforms like GoCompare emerging in its brand portfolio, the company has begun earning considerable income through affiliate fees.

Despite delivering high-double digit growth so far this year, shares have since taken quite a tumble thanks to investor sentiment waning. There are undoubtedly risks surrounding management’s primarily acquisition-driven approach. However, with an excellent track record, I can’t help but see this slump as a buying opportunity for my investment portfolio.

Zaven Boyrazian does not own shares in Future.

Molten Ventures

What it does: Molten Ventures is a UK-based tech-focused venture capital firm with a track record of backing now-listed businesses from very early stages.

By Andrew Woods. Molten Ventures (LSE:GROW) performed well during the pandemic. For the year ended March, between 2021 and 2022, pre-tax profit grew from £267m to £325m. The value of the firm’s gross portfolio also rose from £984m to £1.53bn over the same period.

The company’s most exciting performance, however, is in its earnings-per-share (EPS) growth. Between 2018 and 2022, EPS rose from 89p per share to 200p. By my calculation, this means the firm had a compound annual EPS growth rate of 17.6%. While past performance is not necessarily indicative of future performance, this growth rate is extremely attractive.

The company’s most recent net asset value (NAV) was 937p per share in March. While this is now a few months old, it’s clear that the current share price of 460p is a significant discount. Despite this, the broader economic environment has hit tech stocks particularly hard. There may be a further slide as inflation increases and interest rates continue to rise.

Andrew Woods does not own shares in Molten Ventures.

Renalytix

What it does: Renalytix develops and sells medical devices that can diagnose risk indicators for kidney disease.

By Christopher Ruane. I own shares in Renalytix (LSE:RENX) and so far it has been an absolute dog! The shares have lost 85% of their value in the past year alone. Definitely there are still risks here, such as the substantial costs required to sell the company’s system into more healthcare providers.

But I also see a potentially fantastic opportunity if things go well. There is clinical evidence that the technology can help improve diagnostic outcomes. A presentation this month revealed its positive impact at a leading New York healthcare provider.

Kidney disease is the direct cause of over a million deaths globally each year. If Renalytix can sell its innovative, proven system into more healthcare groups, the scalability of its business model could generate higher revenues without adding costs at the same speed. In the long term I remain optimistic about the outlook, but recognise the risks involved.

Christopher Ruane owns shares in Renalytix.

Spirax-Sarco Engineering

What it does: Sprirax-Sarco Engineering is a UK-based industrial engineering company focused on thermal energy management

By Paul Summers: Cheltenham-based Sprirax-Sarco Engineering (LSE: SPX) is a high-quality company I’ve been monitoring for a while now. A world leader at what it does, the FTSE 100 member has long generated high margins and returns on the capital it invests. It’s these hallmarks that have been found to reward growth investors like me handsomely over time.

The only problem with all this is that the stock has always looked extremely expensive. Until now, that is. A 40% slide in the share price in 2022 leaves Spirax trading at almost 28 times earnings. Granted, that’s still not cheap. However, the idea of beginning to build a position here for the long term now looks far more palatable. 

There’s always a chance things could get worse before they get better if we get a recession. However, high customer loyalty should mean the pain should be temporary.

Paul Summers does not own shares in Spirax-Sarco Engineering

Carnival

What it does: Carnival operates a list of renowned cruise line brands. It sells deals and cruise packages to popular destinations.

By John Choong. Carnival (LSE:CCL) was close to hitting a five-year low in June, but positive guidance provided in its most recent trading update sent its share price rocketing by more than 10%. While this is minuscule on the wider scale of things, there are reasons to be optimistic about a potential recovery.

Despite the firm missing analysts’ estimates on earnings per share, revenue and room occupancy rate, revenue grew by almost 50%. More importantly, I was impressed with the company’s future bookings. The figure came in nearly double of Q1 2022, marking its best figure since the beginning of the pandemic. This is something to cheer for, because future bookings bring in the much-needed cash Carnival requires to return to profitability.

Provided that travel tailwinds continue to persist, Carnival could pull off a monumental recovery, pay off its debt gradually, and even achieve positive free cash flow soon. As such, grabbing shares at the current price could be a steal for years to come.

John Choong has no position in Carnival

Looking good

The Coats Group (LSE: COA) share price recently closed at its most expensive since July 2019 before profit taking set in. Yet despite these gains the clothing material manufacturer still looks exceptionally cheap on paper.

Today it trades on a forward price-to-earnings growth (PEG) ratio of 0.9. This is just below the benchmark of one that suggests a UK share could be undervalued.

I think Coats Group has a very bright future. As one of the world’s leading manufacturers of threads, zips, yarns, and trims it will play a critical role in clothing a rapidly-growing world population.

Furthermore, Coats Group’s pan-global operation also leaves it well placed to profit from soaring consumer spending levels in emerging markets. I’d buy the penny stock even though the cost of living crisis clouds its sales outlook in the nearer term.

Sports star

Science in Sport’s (LSE: SIS) share price has plummeted in recent sessions. The sports nutrition specialist recently closed at one-year lows following a frosty reception to its latest financials.

It’s no shock as to why investors headed to the exits. SIS’ pre-tax losses swelled to £5.3m in 2021, it said, caused by “investment in technology and data science” and share-based bonus payments to employees. This was up considerably from £2.3m the year before.

I’ve been weighing up whether SIS’ plunging share price represents an attractive dip buying opportunity. And I think the answer is yes. I think it’s a great way to capitalise on the rapidly growing sports nutrition market. Last week SIS said that it expected revenues in March to set a new monthly record.

Science in Sport has excellent brand recognition through its own-branded and PhD Nutrition–labelled products. It has also invested heavily in technology to boost online sales.

FInally, SIS has spent huge sums in the supply chain to eventually help it accommodate £200m worth of yearly sales. The firm reported revenues of £62.5m in 2021.

Sure, the business operates in a highly-competitive industry. But I think its excellent momentum in a fast-growing industry merits a close look.

Another cheap penny stock to buy

Building materials supplier Breedon Group (LSE: BREE) hasn’t suffered the sort of shocking sell-off as SIS. But recent share price falls still leave it looking mighty cheap.

For 2022 Breedon trades on a forward PEG ratio of 0.5. I think it could prove to be a brilliant penny stock to buy as construction activity in the UK grows. More specifically I expect it to thrive from healthy infrastructure investment and a step-up in house building.

Breedon supplies bricks, tiles, aggregates, concrete, and a wide range of other essential building products. Profits might suffer if broader economic conditions deteriorate. However, I think this risk is baked into the company’s dirt-cheap share price. I think its a great growth stock for me to buy today.

Stocks and Shares ISA buys 

The first company on my list is the FTSE 250 threads manufacturer Coats (LSE: COA). Over the past couple of years, this firm has transformed from a turnaround situation into a growth opportunity. It is the world’s leading industrial thread manufacturer, one of those businesses that hardly gets the pulse racing.

But the company forms an integral part of the global clothing supply chain, and it has been benefiting from rising demand for its services.

According to its latest results release, reported revenues increased 29% in its 2021 financial year. Operating profit jumped 75% off the back of these figures allowing the company to reduce overall debts with additional cash flow. Going forward, management plans to invest its windfall profits in further growth opportunities.

Optimisation

It is looking to “optimise” its manufacturing footprint and workforce. These initiatives are expected to lower overall costs even as the group invests in new products. It launched 21 new products last year. These products contributed $37m in incremental revenue. 

Despite the company’s strengths, there is no denying it will face some challenges. These include wage pressures and supply chain issues, both of which could hit profit margins in the near term. Further, like almost every other business, Coats will have to deal with competition in its primary market. 

Still, despite these risks and challenges, I think the FTSE 250 corporation could make a great addition to my Stocks and Shares ISA. With management planning to bring out new products over the next few years and optimise the company’s manufacturing footprint further, I think it has a bright future. 

Supply and demand

The UK’s private healthcare market is growing rapidly, thanks to a rising number of consumers who are willing to pay for treatment. The growing NHS backlog is pushing wealthy customers to find other options, generating additional business for private healthcare providers such as Spire Healthcare (LSE: SPI). 

This business is rising to the challenge. It reported revenue growth of 20% for 2021 and is investing in new facilities to help meet the growing demand for its services.

Indeed, last year the company invested £77m in new facilities and equipment. This was a 52% increase on the level of investment reported for 2020. The new facilities included replacement CT and MRI scanners. It is equivalent to around 7% of the group’s revenue and 10% of the adjusted operating profit. 

Spire has also been helping the NHS deal with its extensive treatment backlog. It has agreed to provide the public healthcare service with facilities to help treat cancer. Since the start of the pandemic, 356,000 NHS patients have been treated in the company’s facilities.

Need in the market

While some people might disagree with public funding going to private healthcare providers, it is clear that Spire is fulfilling a need in the market. The NHS clearly cannot deal with the growing patient backlog alone. Leaning on other providers in the sector makes a lot of sense. 

For its part, Spire is planning to continue to invest in its operations over the next year. It plans to expand its healthcare offering into new markets, including standalone diagnostic/minor treatment clinics and diabetes long-term condition management. 

Unfortunately, the firm’s growth cannot be taken for granted. This is becoming an increasingly competitive market, and the costs of doing business are growing. Rising costs could impact the company’s growth and spending plans over the next two years. If costs rise significantly, the company might have to put some of its growth plans on ice. This could impact patient care. 

Even after considering this fact, I would be happy to add the FTSE 250 healthcare provider to my Stocks and Shares ISA. As the demand for private healthcare in the UK continues to expand, I think the business can capitalise on this market growth over the next five to 10 years. 

Stocks and Shares ISA opportunity

I have always been impressed by the way Wizz Air (LSE: WIZZ) has grown and developed over the past couple of years. Sadly, the company’s growth plans have had to take a backseat, due to the situation in Eastern Europe. The outfit has a lot of exposure to the region and is the only EU airline with bases and aircraft in Ukraine. 

The company’s exposure to Eastern Europe has spooked investors. The stock has fallen significantly since the Russia-Ukraine conflict began last week. 

While dealing with the fallout of this war is likely to be a significant challenge for the enterprise over the next few years, its operating model is unlikely to change. This suggests to me that now could be a good time to snap up some shares in this aviation challenger. 

Growth potential

The company’s recovery is far from guaranteed. However, it is clear the demand for low-cost air travel is unlikely to fall significantly over the next decade. If the enterprise can survive the current crisis, it should be able to capitalise on this growth. 

With most of its operations located outside of Ukraine, there is no reason to suggest why the business cannot survive the current situation. It may face some turbulence along the way, but Wizz possesses the qualities required to navigate the current crisis. It could even emerge stronger. That is why I would acquire the FTSE 250 investment for my Stocks and Shares ISA. 

Last time out, I analysed a few top-quality penny stocks I think could prove terrific investments for me. I think the following small- and micro-cap shares might also help me to make a mountain of cash.

Coats Group

The clothing needs of a rapidly growing global population create plenty of opportunity for Coats Group (LSE: COA). As a major manufacturer of trims, zips and threads, this penny stock plays a vital role in garment production. And it is taking steps to build its market share by improving its sustainability credentials. It’s a tactic that seems to be paying off too.

Revenues from Coats’ EcoVerde line of recycled sewing threats increased fivefold in the first six months of 2021. The company recently launched its EcoRegen range of biodegradable threads in the hope if replicating this success too.

At current prices, Coats trades on a forward price-to-earnings growth (PEG) ratio of 0.8. A reminder that any reading below 1 suggests a stock could be undervalued. I’d buy the business even though demand for its products could sink during economic downturns.

Agronomics Limited

The number of people either eliminating or reducing the meat in their diets is ballooning. Rising concerns over animal welfare and the environmental impact of livestock farming means that numbers are expected to keep rising sharply too.

But there are still plenty of people who like the taste and texture of meat-based products. This is where Agronomics Limited (LSE: ANIC) bridges the gap. This penny stock invests in companies at the cutting edge of the synthetic meat industry. These include lab-grown beef producer Mosa Meat, cultivated crustacean manufacturer Shiok Meats, and even animal-free pet food maker Bond Pet Foods.

Analysts at McKinsey & Company think the synthetic meat industry could be worth $20bn by 2030. That’s under its medium-growth forecasts which suggests a market value of $1bn by 2025. The market opportunity for Agronomics is clearly huge.

There are many specialised companies in the animal-free food category which Agronomics has to compete with. It also faces colossal challenges from major food manufacturers such as Tyson Foods who have the clout to make life very difficult. Still, I think the quality of the companies that Agronomics invests in could still make it an industry winner.

Science in Sport

The steady change in people’s diets, and in particular rising demand for protein products, is something that Science in Sport (LSE: SIS) also looks set to exploit to the max. This penny stock manufactures protein powders (and other sports supplements) under its ultra-popular brands PhD and Science in Sport.

The importance of living a healthy lifestyle has really gained traction in recent years. Sports participation has leapt and so has demand for Science in Sport’s products — sales at the company rocketed 25% in 2021.

Industry analysis suggests that the company’s market will keep growing at breakneck pace too. Analysts at Grand View Research think the global sports nutrition market will expand at a compound annual growth rate of 8.5% between 2022 and 2030.

I like Science in Sport because of the quality of its products. I also like the company’s strategy of building brand strength by building relationships with elite athletes and sports teams across the globe. The sports nutrition market is highly competitive, but I think this penny stock has the goods to make a splash.

DP Poland

Online food delivery is another industry set for explosive growth over the next decade. One UK share I’m considering buying to capitalise on this is DP Poland (LSE: DPP). I’m tipping takeaway market growth to be particularly explosive in this Eastern European emerging market as people’s incomes sharply rise.

This penny stock is the master franchisee of the Domino’s Pizza label in Poland. This is a big deal because the 62-year-old US chain has one of the strongest brands in the business. I believe it’s one of the reasons why DP Poland’s sales are soaring right now. Like-for-like sales in the final quarter of 2021 jumped 15.6% year-on-year. They were also up 11% from the corresponding 2019 period.

My main concern for DP Poland is the possibility of lasting cost pressures. Indeed, the business says that rising labour and food costs would cause it to miss profits forecasts for 2021 despite those soaring sales. Still, in my opinion, I think the potential rewards of owning this British stock offset the risks. Researcher Statista thinks the Polish online food delivery market will more than double in size between 2021 and 2025.

Van Elle Holdings

I think the stars are aligned for ground contractor Van Elle Holdings (LSE: VANL) to experience strong revenues growth this decade. As with Brickability (which I tipped as a top stock to own in the first part of this article), I think demand for its services will soar as housebuilding in the UK revs up. I also think sales at Van Elle will boom as infrastructure spending on these shores steadily increases.

Activity at the penny stock took a beating in 2020 due to Covid-19-related stoppages. The threat for more disruption remains too as the public health emergency drags on. But, in my view, the possible rewards of holding Van Elle in the years to come outweigh the dangers. The company is a market-leader in the field of infrastructure creation and it’s tipping conditions across its core sectors to remain strong moving into next year at least.

I’m also thinking of buying Van Elle because of its bright dividend outlook. City analysts are expecting dividends to return in this fiscal year (to April 2022) following recent cancellations. And they’re expecting them to rise sharply over the next few years too, thanks to Van Elle’s strong trading outlook and robust balance sheet.

This means the company’s 0.9% dividend yield for this year leaps to 3% and then to 4.5% in financial 2023 and 2024 respectively.

Petropavlovsk

Penny stock Petropavolvsk (LSE: POG) is one UK share on my watchlist. I think that gold prices will rise as inflationary pressures increase and doubts over the economic recovery persist. Of course there’s no guarantee that yellow metal values will increase. A mix of central bank rate hikes to curb exaggerated price rises and a resurgent US dollar could even push bullion values much lower.

But I still think having exposure to gold could be a good idea as an insurance policy for when trouble comes along. Gold’s surge to record highs during 2020’s coronavirus crisis proves this point perfectly.

I’d do this by buying shares in gold producing companies like Petropavolvsk rather than investing in the metal itself. This gives me a chance to potentially grab dividends now and further down the line. And I think a P/E ratio of just 6 times for 2022 could make it too cheap for me to miss. I also like this mining company’s highly-efficient and low-cost POX Hub gold production process where output is steadily ramping up.

Coats Group

Coats Group (LSE: COA) is trading strongly as clothing sales bounce back following strict Covid-19 lockdowns. As a major supplier of threads, zips and trims, demand for its product is rising solidly. Revenues here rocketed 22% at constant currencies in the four months to October, its latest financials showed. Sales were also up 6% versus the same 2019 period.

Sales growth is poised to slow, naturally, though I like the steps Coats Group is making to drive long-term sales. An increased focus on sustainability for example could deliver big rewards (sales of its 100% recycled EvoVerde thread range are expected to have doubled year-on-year in 2021). I’d buy this penny stock even though the issue of sustainability is growing in importance for consumers. This has the potential to hit so-called fast fashion volumes hard.

N Brown Group

Buying retail stocks can be risky business. A case can be made that this sector is particularly dangerous today as supply chain issues persist and the British economy stalls. But I think the potential rewards at some retailers outweigh the risks and this is where N Brown (LSE: BWNG) comes in. This particular company owns popular clothing brands like SimplyBe and JD Williams.

I like this particular stock for a number of reasons. It sells its product at affordable price points. This could make it a winner when consumer confidence is slipping and inflation is rising as is the case today. I also like its focus on the fast-growing ‘plus size’ segment which looks set to continue growing strongly. Analysts at Allied Market Research think the market for larger garments will be worth $696.7m by 2026, up from $481m in 2019. I also like its successful entry into the homewares market, a segment that has boomed in the past few years.

One company that I believe meets all of these criteria is Centamin (LSE: CEY). 

Golden profits 

The Egypt-focused gold miner’s main competitive advantage is its relatively low production costs. On top of this, the organisation has a strong balance sheet stuffed full of cash and gold bullion. These qualities support the company’s attractive dividend yield, which is projected to hit 6.6% next year. 

As well as these engaging qualities, Centamin is currently selling at a forward price-to-earnings (P/E) multiple of 11.4. Once again, I think this multiple only adds to the appeal of the stock. 

Of course, the most considerable risk of buying any commodity-based company is that related prices could fall. In this case, Centamin’s earnings could decline if the gold price slumps. Despite this risk, I am attracted to the stock, considering its income potential, strong balance sheet and valuation. That is why I would buy the corporation for my portfolio of penny shares today. 

Penny shares for growth 

I would also buy Coats Group (LSE: COA). This firm’s competitive advantage is its size and reputation. The company, which supplies threads, zips and fasteners to the fashion industry, is also taking market share due to its focus on sustainability. Profit margins have risen back above pre-covid levels as customers are willing to pay more for sustainable products produced by the corporation and based on recycled or bio-degradable materials. 

As well as this competitive advantage, the group also maintains a strong balance sheet and the stock supports a dividend yield of 1.4%, at the time of writing. The P/E multiple currently attached to the business is just 14.3. Like Centamin, I reckon this undervalues the enterprise. 

Coats does have an advantage over some of its peers, but this is an incredibly competitive sector. There is no guarantee the company will be able to maintain its advantage. Trying to stay ahead of the competition is probably the biggest challenge the corporation faces in the long run. 

Still, Coats has been able to maintain its market share in the past. 

Recovery play 

Finally, I would acquire Hostelworld Group (LSE: HSW) for my portfolio of penny shares. The pandemic has wreaked havoc on this company’s business model. Revenues plunged from €81m in 2019 to just €15m in 2020. Last year, the group racked up a total loss of €51m. 

Considering the scale of these losses and the challenges Hostelworld faces, the stock might not be suitable for all investors. However, I would buy the shares as a recovery play. Looking at its historical profitability, I think the shares appear cheap today, based on its recovery potential.

Further, its balance sheet is weaker than I would like, but it should provide the group with the resources needed to drive a recovery. As the travel sector starts to rebuild, I think Hostelworld should see a strong rebound in earnings and sales.

What’s going on with the Coats share price?

Decent business performance

Fretting about the Coats share price is nothing new. The late diarist Alan Clark, whose family fortune began with a Paisley threadmaker swallowed up by the company, frequently mentioned the Coats share price in his Diaries. The longevity of such concerns partly reflects structural challenges to the share price of thread manufacturers. Inputs are commodities, so can be subject to wild price swings. Low cost competitors in the global economy threaten profit margins. Demand can be subject to the economic cycle, threatening revenues and profits.

But as well as such general concerns, Coats has had to contend with more specific challenges. Lockdown impacts in India ate into its first-half performance, for example. Overall, though, I think the recent news from Coats has been encouraging. Organic revenue in the first half was slightly higher than the pre-pandemic level two years previously. Organic operating profit was flat, while reported operating profit was down 4%, a bit disappointing, but not bad considering the supply chain challenges which have added to the company’s costs.

Net debt excluding leases fell, and the interim dividend was resumed at a level over 10% higher than before the pandemic. The company also modestly upgraded its expectations for the full year.

Why has the Coats share price fallen?

That explains why the company’s shares have moved upwards in the past year. But it doesn’t cast much light on the recent fall. If earnings per share come in at roughly pre-pandemic levels, the current price-to-earnings ratio is around 14, which I think is attractive. There has been no particular piece of bad news in recent weeks that might explain the downwards movement in the Coats share price.

I think probably a couple of factors are at play. First, after a strong run over the summer, the shares have simply given up some of their previous gains as investors have locked in profits. Secondly, nervousness about mounting costs in supply chains has hurt investor confidence in the Coats investment case.

I do see supply chain issues as a risk to Coats. It is heavily integrated into a globalised supply chain, both on its input and output side. The company sells to around 40,000 customers in 100 countries. In a cost competitive industry it may be hard for Coats to pass on all increased logistics charges to customers. That could eat into profit margins, and may help explain the fall in reported operating profit margin seen at the interim results stage.

Where next for the Coats share price?

But I don’t expect possible margin compression from increased logistics costs to damage the investment case for Coats over the long term. As the interim results showed, the business is performing decently, sales have recovered and management is upbeat about prospects for the rest of the year.

On that basis, I think the recent correction in the Coats share price may prove to be fairly short lived.

History reveals that the average long-term investor makes an average yearly return of 8%. This figure also takes in periods when stock markets are crashing. So why would I stop buying UK shares for my Stocks and Shares ISA? Snapping up stocks that have recently plummeted in value gives me the chance to supercharge the returns I could potentially make too.

2 penny stocks I’d buy right now

I think now could be a particularly good time to buy penny stocks as well. Clearly I need to be careful here as smaller-cap stocks (generally speaking) have less financial strength to withstand economic shocks than larger companies. But recent stock market sell-offs have seen top-quality and well-capitalised penny stocks sold off along with the more vulnerable.

Here are what I think are two of the best penny stocks to buy as stock markets slump. I’d happily spend £500 on each of them.

Jaw-dropping value

It’s no surprise that Coats Group (LSE: COA) has slumped in value recently. The threads, zips and trims manufacturer has fallen as concerns over runaway inflation have exploded. As well as threatening to push up costs, rocketing prices could deal consumer confidence a significant blow. As a consequence smacking sales volumes across the entire clothing market could sink.

It’s my opinion however, that Coats Group could now be too cheap to miss. The world’s biggest threads manufacturer now trades on a forward PEG ratio of just 0.2, well below the bargain-basement benchmark of 1. As a long-term investor, I’m excited by the potential profits this penny stock could generate as the global population expands and wealth levels in emerging markets soar. And don’t forget that the fast-fashion market is expected to keep growing rapidly too.

6.3% dividend yields!

I think Civitas Housing Group (LSE: CSH) could be one of the best penny stocks to buy, as concerns over the economic recovery grow. As the name suggests, this UK share specialises in providing accommodation, giving it exposure to one of the most stable areas of the property market. What’s more, the rents it receives are paid directly to tenants by local authorities, meaning it doesn’t have to worry about dangers like occupiers losing their jobs.

Today, Civitas trades on what I consider to be an undemanding forward P/E ratio of 16 times. Given those excellent defensive qualities, I think this makes the penny stock something of a bargain. What’s more, at current prices of 89p, the company carries an enormous 6.3% dividend yield.

I’d buy this UK share despite the fact that its acquisition-led growth strategy leaves it open to overpaying for an asset, or realising below-expected returns.