Pubs and bars

Marston’s is an owner and operator of pubs and bars, as well as an ale brewer with over 180 years of experience. It has a workforce of over 14,000 people and is a powerhouse in the leisure sector with more than 1,500 locations. It also operates six breweries that produce over 60 different ales.

So what’s the current state of play with Marston’s share price? Well, as I write, the shares are trading for 35p, putting them in the penny stock category. At this time last year, the stock was trading for 83p, which is a 57% decline over a 12-month period. I’m not concerned by the current share price drop, caused by macroeconomic headwinds. In fact, I view this as an opportunity to buy cheaper shares.

Challenges to note

There are a few current macroeconomic headwinds at play such as soaring inflation, rising costs, the energy crisis, and the supply chain crisis. Marston’s shares have fallen and the business could suffer further yet. For example, rising costs eat into profit margins. Next, the energy crisis here in the UK is causing many businesses to crumble under pressure from higher energy costs.

Finally, due to these factors, a cost-of-living crisis has emerged in the UK. Marston’s could see its customer numbers fall as people have less money to spend on going out.

Why I like Marston’s shares

So let’s take a look at the bull case then. To start with, I believe the risks mentioned earlier are shorter term. My belief is that a business like Marston’s, with its diversified offering, brand power, and large presence in the UK should be able to boost growth, performance, and shares in the longer term.

Despite Marston’s performance falling since the pandemic, which was a really tough period for all in the leisure industry, it still manages to record a consistent profit. I believe it can return to pre-pandemic levels eventually based on previous track record, as well as my points earlier around brand power and size.

One final positive aspect I believe that could boost Marston’s in the longer term is pent-up demand. The pandemic gave many people a new-found appreciation for socialising, and attending their favourite restaurants and bars. When restrictions originally eased last year, pent-up demand boosted many businesses, Marston’s included. This resurgent attitude towards socialising should continue to boost Marston’s, in my opinion.

My verdict

In conclusion, I expect Marston’s shares to experience some tough times ahead, more so in the shorter term. Despite that, they look like a cheap penny stock option for me to buy and hold for the long term with a diversified business model, a great presence, and brand power. I’ll be buying the shares imminently.

Pharos Energy

Pharos Energy (LSE:PHAR) has performed reasonably well over the past year. As markets have slumped, the firm’s share price has only fallen by about 6%. It currently trades at 23.1p. 

The firm, which is an oil and gas explorer and producer, has quickly revived its fortunes over the past two years.

In 2020, it reported a pre-tax loss of $241m. By the next year, this had turned into a pre-tax profit of $38.6m.

It’s no secret that most oil companies are currently benefiting from surging prices of both Brent and WTI crude oil. This price trend essentially makes Pharos Energy’s produce more valuable.

The company stated in November that it had seen high flow rates from the first three wells dug at its Vietnam operation, with a fourth well to be perforated in due course.

It has also drilled three wells at its project in Egypt, but recently agreed to sell 55% of its assets to a private equity firm. This transaction bags the company $5m immediately, plus significant performance-based add-ons.

Given the nature of oil exploration, however, it’s always possible that projects could deliver little or no oil.

Marston’s

Secondly, Marston’s (LSE:MARS) endured a torrid time during the two years of the pandemic. With restrictions on eating out, this pub firm really felt the pinch. It currently trades at 54p.

For the year ended October, between 2020 and 2021, however, pre-tax losses narrowed from £388m to £171m.

Furthermore, for the six months to 2 April, pre-tax losses were just £7.5m, down from £122m for the same period in 2021. Revenue also increased from £55.1m to £370m over the comparison period.

Although past performance is not necessarily indicative of future performance, these improving financial results do give me confidence as a potential investor.

While the business is now benefiting from the relaxation of pandemic restrictions, it’s also now feeling the effects of higher electricity prices, tighter food supplies, and wage inflation. 

The company does have certain pricing strategies up its sleeve to try and relieve this pressure, but there’s the very real chance that these economic factors begin to eat into future balance sheets.   

Overall, these two businesses are currently in decent shape. While their penny stock status does heighten my investment risk, I will be splitting my £1,000 equally and buying shares in both stocks next month.

Robust markets

Staffline Group (LSE: STAF) is admittedly in some danger as the UK economy cools. If breakneck inflation persists and companies struggle then demand for its recruitment services could tank.

That said, I’m encouraged by the resilience of Britain’s labour market so far. And this could still encourage me to buy the penny stock today.

Indeed the Recruitment and Employment Confederation announced this week that, “Demand for permanent staff remains buoyant despite increased economic concerns”. Consumer price inflation hit fresh 30-year highs in April yet companies’ hiring intentions for the short-to-medium term has continued to rise.

“Strong start”

Staffline itself celebrated the ongoing robustness of the UK jobs market a month ago as it described the “strong start” it had made to 2022.

The company added then that while economic uncertainty had increased, its “strong market share in resilient sectors” like food distribution, e-commerce, and logistics helps give it decent earnings visibility.

City analysts believe conditions will remain favourable for Staffline as well. They think the penny stock’s profits will soar 246% year-on-year in 2022. And this leaves it trading on a forward price-to-earnings growth (PEG) ratio of 0.1.

Any reading below one suggests that a stock could be undervalued. At these prices I think Staffline is a steal.

Rewards vs risks

Pub operator Marston’s (LSE: MARS) is another penny stock that could suffer as the cost of living crisis intensifies.

It’s a danger that brewing giant Heineken highlighted this week. On Wednesday it said that it the impact of increasing inflationary strain on household disposable income poses “a consequent risk to beer consumption later in the year”.

In the UK, where all Marston’s pubs are located, inflation is tipped to peak at 8.7% in 2022 by the Office for Budget Responsibility. That could really weigh on drinkers’ budgets.

Another cheap penny stock

Naturally the danger of ballooning living costs to pub operators is particularly high. The cost of a pint or a glass of wine at one of Marston’s inns is far more expensive than what you or I would pay for a bottle at the supermarket to drink at home.

Still, as a long-term investor I’m tempted to buy Marston’s for my portfolio. I think a forward price-to-earnings (P/E) ratio of 9.8 makes it too cheap to miss.

Data shows that Brits continue spending larger proportions of their discretionary income on leisure activities like drinking and eating out. This is an established trend that I think Marston’s will profit handsomely from when those current dangers pass.

City analysts believe the penny stock will continue recovering from the damage wrought by Covid-19 lockdowns, too. They think Marston’s will bounce back into profit this year (to September 2022) following two years of losses and grow earnings 38% in financial 2023 as well.

Protection from rising inflation

I think buying property stocks is a good way to protect myself against rampaging inflation. This is because rents by and large rise in line with broader prices. It’s a quality that not all UK stocks share.

I think Empiric Student Property (LSE: ESP) in particular could be a top buy right now. As well as helping me guard against inflation today, it could make me a lot of cash in the years ahead as student numbers jump and the need for dedicated accommodation increases.

Latest figures from the Higher Education Statistics Agency showed the number of UK students leap 8% in the 2020/2021 academic year. The number of full-time first-year students also grew at the fastest pace on record. These numbers illustrate the massive opportunity for Empiric Student Property.

Chunky dividends!

City analysts are expecting the penny stock’s earnings to double year-on-year in 2022. Consequently the company trades on a forward PEG ratio of just 0.3.

I like Empiric Student Property too because of its healthy dividend yields. These sit at 3% and 4.1% for 2022 and 2023 respectively. I’d buy it despite the threat that Covid-19 poses to student enrolment levels in the near term.

Another dividend-paying penny stock to buy

Speaking of high dividend stocks, Centamin (LSE: CEY) is a gold stock whose big yields make it an attractive investment target. The forward yield here sits at a huge 5%.

There’s a couple of good reasons I think Centamin is a great buy today. The first is that I believe gold prices could be on the verge of soaring again as inflationary pressures grow. Demand for gold rises when the value of paper currenices come under scrutiny.

This week Bank of America said that it expects gold to hit $2,175 per ounce in the current climate. That’s around 100 bucks higher than summer 2020’s record peaks.

Production boost

I also like gold stock Centamin because of the steps it’s taking to boost production over the medium-to-long term. The company plans to deliver 500,000 ounces of the shiny stuff each year from its Sukari flagship mine over the next decade. Centamin is on track to dig between 430,000 and 460,000 ounces of gold from its Egyptian asset in 2022.

Centamin’s a great way to make money from a strong gold price in my book. But of course there’s no certainty that precious metal prices will rise. Rapid central bank rate hiking and a robust rise in the US dollar could send gold prices lower.

However, on balance I think — as a long-term investor — that the benefits of owning Centamin shares offset the risks. I also think its undemanding forward P/E ratio of 12.2 times makes the penny stock a great buy (it’s expected to enjoy a 10% rise in annual profits this year).

Here are two dirt-cheap penny stocks I’m thinking of snapping up.

Marston’s

I think pub operator Marston’s (LSE: MARS) is a top buy as conditions in the leisure sector steadily improve. At 84p per share, the business trades on a forward price-to-earnings (P/E) ratio of just 11.3 times, an attractive valuation given the strength of recent industry news.

This penny stock’s most recent update in January revealed how sales were bouncing back following lockdowns earlier in 2021. Latest financials from industry rival JD Wetherspoon confirm that drinkers are returning to the bar in large numbers too. On Friday, Wetherspoons said that sales in the previous three weeks were just 2.6% below 2019 levels in what it said was part of an “improving trend”.

The Marston’s share price has rebounded solidly in recent weeks. I think it could keep marching higher too as people continue emerging from Covid-19 hibernation. I am concerned by the impact that rising beer, labour and energy costs could do to profit margins at pub operators like this. But as a long-term investor I think the rewards of owning the leisure business outweigh the risks.

The amount people spend on going out is on a continuous uptrend (barring those coronavirus-related interruptions). And Marston’s, with its large estate of pubs, eateries and hotels, is well-placed to capitalise on this.

Breedon Group

I believe that building materials supplier Breedon Group (LSE: BREE) also offers unmissable value right now. At 86p per share this penny stock trades on a forward price-to-earnings growth (PEG) ratio of 0.6. A reminder that any reading below 1 suggests that a stock could be undervalued.

Breedon is a highly-cyclical business. And, as a consequence, I need to consider the impact that Britain’s darkening economic outlook could have on its revenues. Uptake of its aggregates, concrete and other products would likely suffer a sharp slowdown if construction activity begins to cool.

This is a risk I think is baked into Breedon’s rock-bottom valuation however. In fact, I remain quite upbeat about the company’s earnings outlook today. Historically-low interest rates and government support for first-time buyers mean that homes demand should continue to outstrip supply. So sales of its bricks, tiles et al from developers are likely to remain rock-solid as building rates pick up.

Government commitments to increase infrastructure spending also bodes well for Breedon in the short term and beyond. And demand for its goods should remain supported by a healthy repair, maintenance and improvement (or RMI) market. Breedon reported record volumes, turnover and profits in 2021. And it looks in great shape to build on this momentum.

Toasting a recovery stock

Revenues are bouncing back encouragingly at Marston’s (LSE: MARS) following the shock of Covid-19 lockdowns. Like-for-like sales were up 1.3% in the eight weeks to 27 November, latest financials showed. I expect trading momentum to steadily pick up too as concerns over the pandemic recede.

Don’t think that Marston’s is just a great buy for the post-pandemic rebound, though. As a long-term investor, I’m encouraged by data showing that Brits have been spending a greater proportion of their salaries on eating and drinking out in recent years. It’s a trend that recent studies suggest remains very healthy.

My main concern for Marston’s looking ahead is the prospect of soaring beverage costs. Beer giant Heineken has just warned that prices for its fizzy product could rise to reflect a 15% rise in costs. Pub operators will either have to absorb this higher cost and watch margins come under pressure, or they’ll pass these increases onto the customer and risk a revenues slump.

Too cheap for me to miss?

That being said, at current prices, I still think Marston’s shares could be too cheap for me to miss. The business is expected to bounce back into profits in this financial year (to September 2022). This leaves the penny stock trading on a forward price-to-earnings ratio of 10.8 times.

I’d also buy Marston’s because its dividends could be about to explode again. Marston’s paid dividends well above the market average before Covid-19 forced it to cease shareholder payments altogether. And City analysts anticipate that the company’s expected return to profit this year will also result in an immediate return to dividend payments.

A 0.7p per share dividend is forecast for financial 2022, resulting in a modest 0.8% yield. The expected yield leaps to 2.3% for next year, though, thanks to a predicted 1.9p dividend. Like all forecasts, these could change based on future developments and are not something to rely on. But I think Marston’s could prove a great buy to add potentially strong earnings and dividend growth to my portfolio.

A penny stock for the strong jobs market

Staffline Group (LSE: STAF) might not have things all its own way if the domestic economy really starts to struggle. But right now the penny stock — which provides recruitment and training services to business — is doing a roaring trade thanks to the buoyant jobs market. Full-year gross profits at Staffline rose 11% in 2021.

Latest signals show that job hunting activity in Britain continues to strengthen, too. New data from Ipsos shows that almost half of all workers have searched for new employment in the past three months. The cost of living crisis suggests that the number could keep climbing as well as people seek better pay.

Fellow recruiter Hays saw like-for-like fees in the UK and Ireland leap 33% between October and December. And permanent hirings here rose 69%, illustrating the strength of business confidence recently. This gives me confidence that Staffline could continue to deliver meaty profits growth. It’s one of several top growth stocks I’m considering buying today.

A penny stock on my radar

Pub chains like Marston’s (LSE: MARS) face some significant near-term dangers as beer prices jump. They have a tough choice to make: pass these costs onto the consumer and risk a revenues slump, or absorb the cost themselves at the expense of margins.

Marston’s is directly impacted by rising brewing costs too through its stake in the Carlsberg Marston’s Brewing Company joint venture.

Today, sector industrialist and entrepreneur Lord Bilimoria (founder of Cobra Beer, which Marston’s sells) told the BBC that the industry is facing a “vicious cycle” of rising costs and that price rises “were a necessity”. The problem is one that the pub industry (and its investors) cannot ignore.

However, I think these could be baked into the ultra-cheap Marston’s share price. Today the business trades bang on the bargain-basement P/E ratio watermark of 10 times.

As a long-term investor, I’m pretty tempted to pick up the publican at these levels. People are spending a greater proportion of their incomes on eating and drinking out in a trend that stretches back years. And thanks to its 1,500-odd pubs that span the UK, Marston’s has a chance to really capitalise on this opportunity.

Marston’s was forced to stop paying dividends following the outbreak of Covid-19. But shareholder payouts are predicted to leap as the world seems to be emerging from the pandemic. A payout of 0.7p per share is forecast by City analysts for this financial year to September 2022. And rewards are predicted to treble to 2.1p in financial 2023. This powers the yield from 0.9% today to a healthy 2.6% for next year.

Wind in its sails

Shipping giant Clarkson (LSE: CKN) is also expected to lift dividends at a robust rate. What’s more, at 2.8% for 2022, it still comfortably beats the broader FTSE 250 average of 2.1%.

There aren’t enough ships to meet the demands of the recovering global economy. And Clarkson, a major provider of shipbroking and maritime financial services, is one company that’s reaping the rewards. Booming shipping rates are expected to last too, as economic conditions steadily improve and subdued vessel building in recent years impacts the market.

Of course, Clarkson’s profits would take an almighty whack if the economic rebound runs out of steam. A worsening Covid-19 crisis, for instance, or severe central bank action to curb soaring inflation are a couple of dangers to the company’s bottom line.

But, right now, it’s full steam ahead for the shipping colossus. Indeed, Clarkson upgraded its 2021 profits expectations again last month, thanks to robust trading in December.

Against this backdrop, I think Clarkson’s dividends could grow rapidly for years to come. City analysts are tipping a full-year dividend of 89p per share for 2022, up 5.8% from last year’s levels. Payments are forecast to leap 7.1% to 95.3p in 2023 too.

Sellers of big-ticket items like Pendragon might also suffer as rocketing inflation smacks consumer confidence.

That said, I think Pendragon’s cheap price might still make it a great long-term buy today. At 21.6p per share, it trades on an ultra-low forward price-to-earnings (P/E) ratio of 6.5 times.

I’m minded to buy the penny stock as I think sales of its electric vehicles could soar as concerns over the climate emergency grow. The Society of Motor Manufacturers and Traders has previously guided that 300,000 new battery-powered vehicles could roll out of UK showrooms in 2022.

Protection from surging inflation

I think investing in some choice property good stocks could be a good idea too as inflation hits 30-year highs. Many UK companies face pressure from rising prices in some way, shape or form, whether that be through rising costs or falling consumer spending power. Property shares are a good hedge against this as rents tend to rise in line with inflation.

This is one of the reasons I’m considering buying Empiric Student Property (LSE: ESP). But it’s not the only one. Sure, the student accommodation specialist would take a hit if the Covid-19 crisis worsens and university attendances dive again. However, I think the long-term benefits of owning this share outweigh this more immediate danger.

Soaring numbers of overseas students is only increasing the shortage of student beds in Britain. This is steadily nudging rents up and property supply is tipped to continue lagging demand for years to come.

At 89p per share, Empiric Student Property trades on a forward price-to-earnings growth (PEG) ratio of just 0.2. This is well inside the widely-accepted bargain benchmark of 1 and below.

Another dirt-cheap penny stock!

Pub operator Marston’s (LSE: MARS) is another penny stock that could suffer if Covid-19 rates increase and lockdowns return. Investors already have to tolerate a big dollop of risk here as labour costs rise.

But it’s my opinion that recent share price weakness here represents a terrific buying opportunity for long-term investors. Today, the firm trades on a forward P/E ratio of 10.2 times.

I’m encouraged by news that sales here were bouncing back before Omicron emerged and fresh restrictions followed. Revenues were up 1.3% in the eight weeks to 27 November, Marston’s said last week.

Britons were spending more and more money on leisure activities like drinking and easting out before the Covid-19 emergency. Those fresh numbers suggest this positive trend remains in tact and could power profits at pub operators like Marston’s in the years ahead.

Today, the UK leisure share trades at 81p per share. I’m thinking it could be too cheap for me to miss.

That said, these investments can turn sour very quickly, so I have to keep a close eye on their operations. With that in mind, here are three penny stocks I would buy today for their growth potential. 

Cheap penny stocks 

The first company on my list is the hospitality operator Marston’s (LSE: MARS). After the challenges of the pandemic, it looks as if the business is bouncing back.

According to its latest trading update, sales during the 16 weeks to 22 January were down just 3.6% compared to 2019 levels. However, before the Omicron variant emerged, like-for-like sales in the eight weeks to 27 November were 1.3% above 2019 levels. 

The company is having to deal with some challenges that could hold back this growth recovery. Inflationary pressures could increase costs for the group and customers, hurting sales. 

These numbers appear to show that without restrictions, Marston’s has the potential to return to pre-pandemic levels of sales and profits.

Still, despite this potential, the stock is selling around 30% around pre-pandemic levels. I think this presents an opportunity for long-term investors. That is why I would buy the shares for my portfolio of penny stocks today. 

Building the recovery 

Specialist building products supplier SIG (LSE: SIG) has struggled to earn a profit since 2015. The group has lost more than £400m since 2016. 

Thanks to the booming European construction market, analysts believe this will change over the next two years. The City has pencilled in a group net profit of around £10m for the 2021 financial year and £18m for 2022. 

Yet it looks as if the market doubts the company’s potential. And I will admit I think there is a strong chance it will miss the projections. After five years of disappointment, the company needs to pull out all of the stops to convince the market it is back in business. Inflationary pressures and the supply chain crisis will not help matters. 

Despite these challenges, I would acquire this business for my portfolio of penny stocks as a speculative recovery play. If it can return to the black over the next two years, investors could return to the shares and drive a re-rating of the stock. 

Rising interest rates

Metro Bank (LSE: MTRO) only recently entered the realm of penny stocks. The company was once one of the most sought after businesses on the London market. But after a string of scandals and disasters, the shares have plunged. 

Nevertheless, I believe the outlook for the banking sector as a whole is improving as interest rates start to rise. Higher interest rates will enable lenders to charge borrowers more, boosting their profit margins. 

Metro’s main challenge now is to reduce costs far enough for rising rates to have a material impact on group profit. If costs begin rising faster than interest income, the lender could struggle to return to growth. 

Despite this headwind, I think the combination of the economic recovery and rising interest rates provides a very favourable environment to support the business’s comeback in the next few years. 

How to choose penny stocks

But not all penny stocks are equal. Some stocks are so cheap because the company does not have strong prospects and its share price has just dwindled to penny stock territory. That is not the kind of stock that I want to hold in my portfolio, because it is clearly a losing game. Yet there are others that are penny stocks today, but could explode over time. Here I explore two stocks that I think could have such potential and in which I would gladly invest £1,000 today. 

Staffline sees better prospects

The first stock is recruitment services provider Staffline (LSE: STAF). When I last wrote about it in September, its share price had shown an unbelievably positive trend over the past year. It had actually tripled! A couple of months later, it has seen a correction from those levels. It has, however, more than doubled in the past year and is around 62p right now.

Considering that labour market trends in the UK are largely positive right now, I think it might start strengthening again. In fact, I think it could lose its penny stock status and go back to pre-pandemic levels soon. There some stumbling blocks, though. It is not a profitable company and labour shortages could hold the sector back too. On the whole though, I think this is a good growth stock to buy today. 

Marston’s is a pub stock to buy

Another penny stock I like is Marston’s (LSE: MARS). At a share price of 77p, the stock has actually lost some of the gains made right after the stock market rally that started last November. Its share price actually rose above 100p earlier this year, before dropping, probably on continued uncertainties in overall conditions. 

However, I think in the coming months it could rise again. Its latest results showed that sales were higher than they had been pre-pandemic for the quarter ending 2 October. And importantly, social distancing is a thing of the past now as vaccinations strengthen and the intensity of Covid-19 cases diminishes. 

My only problem with the stock is that it was loss-making even in the year before the pandemic. And now the company has posted two successive years of losses. Nevertheless, its latest six monthly numbers show that it has the capacity to turn around. I could wait a little while longer to see if it stays profitable now. But the more I observe it, the more convinced I get that it is a stock that could rise over time. It is a buy for me. 

Reopening benefit

Marston is a pub and bar operator and ale brewer with over 180 years of experience and history behind it. With over 14,000 people working for it and lots more in partnership with it, it is a powerhouse in the leisure sector. Marstons has close to 1,500 locations throughout the country. It also owns and operates six breweries that produce over 60 ales.

The pandemic was a difficult period for the leisure sector but reopening has been welcomed by all. With reopening in full swing, I think Marstons has and will continue to benefit, which is why its shares are on my radar.

A penny stock is one that trades for under £1. As I write, shares in Marstons are trading for 81p per share. A year ago shares were trading for 47p which is an impressive 72% return. Year to date, shares are up 17% from 69p to current levels.

Why I like Marstons

Pent up demand will benefit Marstons and I believe it’s trading levels will return to pre-pandemic levels as time goes on. I can already see evidence of this in its year-end trading update released last month. This update covered the 52 weeks ended 2 October. Restrictions were lifted on 12 April. For the most recent quarter from 25 July to 2 October, Marstons reported better trading than 2019 levels. Trading since restrictions were lifted has been at 94% of 2019 levels. The pandemic disrupted this year’s trading, which saw pubs only open for 54% of the year. I believe the current reopening will mean pre-pandemic performance surpassed in the coming months ahead. 

I like the look of Marstons balance sheet and financial position. Based on the update provided last month, net debt was down £97m from the same period last year, which is encouraging. At year-end, Marstons has £90m of headroom against its £280m bank facility. Furthermore, 94% of its borrowings are set up in a way where they are not at risk of changes in interest rates which we know are currently increasing. This tells me that it is managing finances well and positive trading ahead may mean a return for investors.

I like the fact that Marstons has a diversified business model. Not only does it have several hundred different types of pubs across the whole of the country, it has a brewery arm too. This diversification can protect it against tough trading times or when one part of the business experiences a downturn.

Penny stocks have risks

Firstly, Marstons operates in a saturated market and competition amongst pubs and breweries is intense. This competition could affect trading and any investor returns. Finally, the pandemic is not over. As we go into the winter months, if cases were to rise, the government could consider further restrictions meaning Marstons pubs could close once more like before.

Overall, I would buy shares in Marstons right now if I had £500 to invest for my portfolio. I believe it has a good business model with a robust balance sheet and pent up demand will boost financials and offer generous returns.