Leading retailer

The Halfords (LSE: HFD) share price has had a decent start to the new year. It’s up around 3% as I write. Over one year, the stock is up near 19%. But I think the shares can continue to rise through 2022.

Halfords is a recognisable brand as it’s a leading automotive and cycling retailer throughout the UK. It also offers servicing and repair in its auto centres. The company announced a shift in strategy in 2018, which was to evolve into a services-focused business. Progress towards this has been encouraging, with the Group Services division now representing 33% of total revenue.

Within the services offering, Halfords has been expanding its electric vehicle capabilities. For example, the company has already trained 1,300 electric technicians. This is on track to reach 2,000 by the end of fiscal year 2022 (the 12 weeks to 31 March 2022). This should provide excellent growth potential in the years ahead. As it stands, revenue generated from servicing electric cars grew 120% year-on-year in the recent interim results.

The stock is very cheap in my view. On a price-to-earnings (P/E) basis, the shares are valued on a multiple of 11. I think this represents very good value relative to the potential for growth in the years ahead.

There are risks to consider before I buy the shares. For one, Halfords has been impacted by the supply chain disruption of late. I’d also consider the potential for competitors in the electric vehicle services market, too. Nevertheless, I’d buy Halfords shares today.

Another good prospect

The next company is finnCap (LSE: FCAP), a financial services company specialising in corporate finance, and mergers and acquisitions (M&A). It’s much smaller than Halfords, with only a £60m market cap as I write today. The share price has rocketed 53% over one year though, as the M&A and initial public offering (IPO) markets have been extremely active.

The recent interim results showed revenue increasing by 55%, which was a record performance for the company. The deal pipeline for IPOs and M&A transactions was said to be remaining strong too.

This is all great. But if I buy the shares today, I’d be earning a cut of future profits. So, the bigger question is, can the record performance continue?

I think the prospects look good. According to a survey conducted by Ansarada, M&A deals in the UK are expected to rise in 2022. The IPO market has also recently been given a boost by the Financial Conduct Authority, the UK’s financial regulator. The rule changes should encourage businesses to list in the UK at an earlier stage. This is a prime target market for finnCap, and should boost future IPO activity.

The shares are only trading on a forward P/E ratio of 8 as I write today. I view this as a dirt-cheap valuation for the potential growth ahead.

The biggest risk for finnCap as I see it is a stock market crash, possibly due to a new strain of Covid. This is highly likely to reduce corporate financing activity. But on balance, I would buy finnCap shares today.

One of the best to buy now?

Last month, I said: “I think the Boohoo (LSE: BOO) share price is potentially too cheap to ignore”.  That’s still my opinion. This week’s profit warning doesn’t change the investment case for me. In fact, it seems even more compelling now given the shares over the last month or so have fallen by a quarter.

Christmas could be a boon for the company, especially if Omicron leads to more restrictions and encourages more consumers to buy online.

But with Boohoo already saying that returns are up due to shoppers sending their dress purchases back, Omicron could also dampen Boohoo sales. But I see that as a short-term issue.

Another problem is, investors seem to be turning away from fast fashion shares in general as ASOS shares have also been falling. Supply chain issues are key problems both are facing.

Boohoo shares strike me as cheap now, so combining that with its still-high (relatively speaking) level of growth, makes me think it’s a potentially profitable investment long term. It’s one of my best stocks to buy for 2022 and it won’t be long before I add it to my portfolio.

A smaller-cap income and growth option

finnCap (LSE: FCAP) could be a great small-cap growth stock, combining capital growth with income, which I think is a very powerful combination.

The group focuses on providing financial services to quite a number of listed companies, but also privately-held growth companies.

The financial services group has solid fundamentals. For example, it has a strong operating margin, which has jumped to 18.7% from 4.6%. That’s lower than earlier in the pandemic but the margin now is also higher than in 2019. Return on equity has also improved a lot in the last three years, to 29%. It was 16.4% in 2019.

The problem is, if 2022 sees a slowdown in IPOs and other fundraising activity, demand for finnCap’s services could melt away, which would hit its revenue and profits. This makes me a bit nervous.

On the plus side though, it’s a higher-yielding share. The dividend yield is around 4.8%. This income, along with it being a smaller-cap stock with growth potential and solid fundamentals, means I’m interested in buying the shares for my portfolio.

A riskier investment

Totally (LSE: TLY) is a smaller-cap penny stock that I think is also potentially one of the best stocks to buy now ahead of 2022.

The healthcare services provider should benefit from the NHS backlog as it provides insourcing. This is a system whereby hospitals subcontract medical services and procedures to it, and it uses hospital premises and equipment for delivering treatments.

In the short term, if Omicron leads to more hospital admissions this may put its general ops on hold. That could impact revenues. But longer term, I think there’s a big opportunity for the group.

An ageing population, ongoing pressures on hospitals (especially over waiting times) and increased spending on the NHS, all mean Totally has a number of factors in its favour to help boost growth.

I’m thinking it could be one of the best stocks to buy for my own portfolio, as I don’t hold any similar companies. 

Fast-growing penny stocks

One fast-growing penny stock is Frenkel Topping (LSE:FEN). It provides financial services advice, particularly for clinical negligence and personal injuries. With a market capitalisation of just under £100m, it’s firmly in the small-cap group. Small companies can often provide the best opportunities to grow, in my opinion.

Frenkel is currently growing assets under management at 15% per year. This is much higher than most independent financial advice firms, in my opinion. Its growth strategy is underpinned by acquisitions. This market is fragmented and there are many smaller players. Frenkel is aiming to be a full-service provider in this niche area by buying up these small firms, often owned by advisers approaching retirement.

It looks like the strategy is working. Recent trading is strong and earnings continue to grow. It demonstrates good quality with a return on capital employed of 10% and a 19% profit margin.

There are a few points to bear in mind, however. It operates in a competitive industry so it will need to keep up with service levels and pricing. Reputational damage could also be a challenge to recover from in this business. Overall, I’m warming to this penny stock and would consider a small holding for my Stocks and Shares ISA.

Much to like

My next penny stock pick is also in the financials sector. It’s financial advisory firm Finncap (LSE:FCAP). With a market capitalisation of £65m, it’s even smaller than Frenkel. Finncap has a strategy of “building a broader financial advisory firm – focused on servicing the needs of the business of tomorrow.” It looks like it’s working so I’ve been keen to take a further look.

There’s much to like about Finncap, in my opinion. It looks like a well-run business that’s growing. Recent trading is encouraging. In the six months ending 30 September, revenues grew by 55% and profits rose by 67%. The record half year included 39 transactions with a total deal value of around £2bn. Looking forward, the deal pipeline looks great too. There are several potential IPOs and equity fundraisings due to be completed over the coming months.

To bear in mind

That said, Finncap operates in a cyclical industry. And although the current market conditions are favourable, that won’t always be the case. I’d have to be aware of when business starts to slow in the next downturn. Also, its shares are relatively illiquid. That could result in sharper share price movements, in either direction.

In addition to its growing business, I like that it has a strong balance sheet. It also offers a relatively generous dividend yield of 4.7%. This gives me a certain cushion of safety. Overall, I like what I see and would consider buying these penny stocks for a part of my portfolio.

Rupert Hargreaves: Trifast

Trifast (LSE: TRI) specialises in the design and manufacture of high-quality industrial fastenings. After a slowdown in demand last year, sales have rebounded this year. Revenues in the first half increased 30% compared to 2020 and are now ahead of 2019 levels.

As the global economy continues to rebuild after the pandemic, I think this trend could continue. Management is also looking to complement organic growth with acquisitions.

At the beginning of September, Trifast acquired Falcon in the USA, and management has said that the search for additional acquisitions continues “apace.”

Considering the growth potential, I would buy the stock for my portfolio. Some challenges it could face that may hold back growth include cost and wage inflation pressures.

Rupert Hargreaves does not own shares in Trifast.

Christopher Ruane: Card Factory

As people buy Christmas cards, small-cap stock Card Factory (LSE: CARD) is on my radar. It’s 56% higher than a year ago, but well below its Spring highs.

The company sharply cut its loss in the first half. The Christmas season should be busy. Increasing moves online could help grow sales. The company is cash generative and cut net debt by a third in the first half. But Card Factory remains risky. Its shops can see sales plummet if there are lockdowns, and supply chain inflation could hurt profits.

Christopher Ruane does not own shares in Card Factory.

Roland Head: Spectra Systems

I think that security technology specialist Spectra Systems (LSE: SPSY) could be a quality company at a reasonable price.

Spectra specialises in providing authentication technology for documents, consumer goods and currency. For example, Spectra provides the security features for many countries’ banknotes and the equipment needed to test them.

Banknotes are Spectra’s biggest market, and this is probably the main risk for investors. Use of paper money is falling and the business could struggle to grow.

However, Spectra is diversifying and continues to win new contracts. The group also upgraded its profit guidance for 2021 in October. I think the shares look reasonably priced at current levels. There’s also a tempting 4.7% dividend yield. This is a stock I’d buy today.

Roland Head does not own shares in Spectra Systems.

Andy Ross: finnCap  

Financial company finnCap (LSE: FCAP) is a great small-cap stock in my opinion. Apart from its small market capitalisation, which gives it plenty of headroom to grow into a much larger company, I really like finnCap’s financials. They indicate to me a stock that has serious growth potential. 

The group has a three-year compound annual growth rate (CAGR) for sales of 29%. This is important because, as an investor, I want to know that demand for a company’s products/services is continuously increasing. The operating margin is improving, so all in all it seems like potentially a great time to buy the shares.  

Andy Ross does not own shares in finnCap.

Royston Wild: Science in Sport 

I’d use recent price weakness at Science in Sport (LSE: SIS) as a dip-buying opportunity. The sports nutrition giant has fallen 10% in value over the past month. Demand for the products it makes is rocketing as peoples’ desire to live healthier lifestyles grows and fitness activities become more popular. Science in Sport’s revenues jumped 24% during the six months to June. 

This small cap’s more than doubled in value during the last year. If industry analysts are to be believed there should be plenty of opportunity for Science in Sport’s share price to continue soaring too. Experts at Statista for example think the global sports nutrition market will be worth $35.4bn by 2026. That’s up significantly from the $16.5bn it was valued at last year. Through its popular products I think the business should make big profits in this favourable landscape.  

Royston Wild does not own shares in Science in Sport.

Zaven Boyrazian: iomart

iomart (LSE:lOM) is a cloud-computing business trying to take on industry giants like Amazon, Alphabet, and Microsoft. That’s quite a tough bunch of competitors, so it’s not surprising to see revenue growth struggle. However, management has since begun pursuing a niche in the hybrid-cloud market through bolt-on acquisitions.

It will take some time before this new strategy starts yielding results. However, iomart continues to be supported by fairly impressive cashflows courtesy of its high customer retention and 93% recurring revenue.

There is obviously no guarantee of success. And using an acquisitive approach has led to an increased debt position that adds more risk. But given the potentially explosive returns of becoming a new leader in cloud computing, I think the risk is worth the reward.

Zaven Boyrazian does not own shares in iomart, Amazon, Alphabet or Microsoft.

Paul Summers: Bioventix

Although still far from being cheap, I think shares in biotech firm Bioventix (LSE: BVXP) are starting to look attractive. Stock in the small-cap antibodies supplier has fallen 20% in value in 2021 so far. 

At least some of this selling pressure has been due to hospitals continuing to prioritise dealing with the pandemic over diagnosing people for other things. To make matters worse, understandably cautious patients aren’t even reporting symptoms to healthcare professionals. As a result, Bioventix’s main business has been suffering.

I reckon this might be a great contrarian opportunity. BVXP’s returns on capital and margins are some of the best on the market. The balance sheet also looks sound. Any indication that Covid-19 is being beaten back and the shares could rally. 

Paul Summers has no position in Bioventix

Still, it is an approach I am comfortable using. With that in mind, here are three I would buy today. 

Penny stocks to buy for growth 

The first on my list is Capital Limited. This £150m market capitalisation corporation invests in resource businesses around the world. Typically I would avoid such companies, but Capital has a strong track record. It recently reported an increase in the value of its portfolio of $23m, taking the value of its investments to $54m. 

Past performance should never be used to guide future potential. Still, with commodity prices ripping higher worldwide, I think the group may continue to benefit from the favourable backdrop. This could lead to further increases in the value of its portfolio. 

That said, commodity prices can fall as fast as they rise. So Capital could see a sudden reversal in its fortunes in the future. 

Wealth management demand

Another company I would buy for my portfolio of penny stocks is the financial services group Finncap (LSE: FCAP). 

With a market capitalisation of £62m at the time of writing, this is a tiny business. That may deter some investors from buying the stock. 

Still, I am excited by its potential. It is currently benefiting from rising demand for its services. In June it reported that revenues for the full-year would be between £40m to £50m.

A few weeks ago, management upgraded this forecast, saying revenues will be “slightly above the top end of these full-year revenue expectations.” 

Finncap’s cash balance is also expanding. It stood at £17.2m at the end of the first quarter and has continued to grow. This is why I think this company would fit nicely into my portfolio of penny stocks with explosive growth potential. 

Energy storage 

The final share I would buy is Gore Street Energy Storage (LSE: GSF). As the UK becomes more reliant on renewable energy, companies like Gore Street may see increasing demand for their services as regulators look to balance grid supply and demand. 

The fund is one of the few ways investors can buy into this trend. That is why I would acquire the stock even though it is technically not a penny stock. It is trading at 109p per share at present. As well as this growth potential, the shares also offer a dividend yield of nearly 6%. 

The company’s yield and growth potential are both attractive, in my opinion, although I realise this might not be suitable for all investors. The energy storage market is still in its infancy, and there could be further challenges ahead for the group to overcome. It might not be able to survive in a utility market dominated by more prominent suppliers. 

The group focuses on providing financial services services to quite a number of listed companies, but also privately-held growth companies. Its activities include corporate finance and broking, equity sales, agency trading and market-making and research. So it’s a financial services company. 

Why it’s a great little growth stock

Apart from its small market capitalisation, which gives it plenty of headroom to grow into a much larger company, I really like finnCap’s financials. They indicate to me a stock that has serious growth potential.

The group has a three-year compound annual growth rate (CAGR) for sales of 29%. This is important because, as an investor, I want to know that demand for a company’s products/services is continuously increasing. A company growing sales should, if it keeps control of costs, be able to make more profit. The figure is impressive and could underpin future growth and share price appreciation.

FinnCap also has a strong operating margin, which has jumped to 18.7% from 4.6%. That was lower than the pandemic but the margin now is also higher than in 2019. Return on equity has also improved a lot in the last three years to 29%. It was 16.4% in 2019. These percentages to me indicate a quality business that’s well positioned for long-term growth.

The dividend yield of 4.2%, which this year is covered nearly three times by earnings is a massive bonus. The shares are also pretty cheap on a price-to-earnings (P/E) ratio of under eight.

But arguably, for a ‘growth company’, the historical revenue rise has been fairly pedestrian and so it would be good to see revenues really pick up. Potentially, if there’s a slowdown in the IPO market, finnCap could be hit. It’s also pretty reliant on the UK for making money, which presents country-specific risk. And there are risks associated with finnCap’s expansion, such as costs going up and a change to its company culture.

Overall though, I have to say the growth and income from a UK small-cap share like this appeals to me and I’ll consider buying the shares.

Another growth stock option

Sylvania Platinum (LSE: SLP) is a share I hold. The South African miner and processor of platinum group metals is dirt cheap with a P/E of around three. It also combines growth potential with income as it has a yield of around 5%.

When it comes to growth, tighter environmental standards for cars is one catalyst for the share price. On top of that, there’s strong historical revenue and profit growth, which I think can carry on into the future or even accelerate. Margins and cash flow are very good, so this is a miner with a rock solid balance sheet and a lot of potential.

Of course as a miner it’s in a cyclical industry, prices are beyond the group’s control as they’re set by international markets, and the mines could be hit by political instability in South Africa.

Bearing all that in mind though, I think it’s another good growth share. I’m likely to buy more given the income and the growth on offer.

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.