But, I didn’t invest in Nanoco. I only discovered it when I looked for the best-performing UK stocks this year. Now that I am aware of this penny stock and its recent track record, would I buy it for my portfolio?

A semiconductor nanotech penny stock

Nanoco produces quantum dots and nanoparticles. These find applications in OLED displays, security tagging, biometric facial recognition, and possibly diagnostic imaging and targeted drug delivery. A small-cap penny stock in the semiconductor nanotechnology business is bound to generate a fair bit of buzz, sometimes unwarranted. Looking at Nanoco’s share price over time, I can see two occasions when the price ran up, but then crashed. Temporary revenue increases accompanied these episodes.

The latest bull run in this penny stock’s price started in mid-March 2022 and is not baseless. On 17 March 2022, Nanoco announced that it had signed its fourth work package (repeat business is good) for a European customer for delivery of an enhanced and scaled-up version of its technology. As a result, the board felt comfortable saying that this year’s revenue number would exceed 2021’s £2.1m.

Reasons to rally

Other events have helped sustain the rally in this penny stock’s price. There was an agreement to develop a project with an Asian chemical firm in July 2022. Also, investors got updates about the company’s patent infringement lawsuit against Samsung in the US, and the trial might start in October 2022.

It’s worth pointing out that someone else is paying the legal fees and will get an unspecified multiple of any award made to Nanoco in the event of a win. This agreement will also extend to another lawsuit launched in August 2022 against the same party in Germany.

There were also a couple of grant awards from the UK’s innovation fund in summer 2022. Then on 12 September 2022, the board announced that 2023 revenues should be about 20% higher than this year (when finally reported), which should, in turn, exceed the last.

Should I invest in penny stock Nanoco today?

The rally in the Nanoco stock price has a basis. But, there have been several false dawns for this penny stock. If the board’s revenue expectations come to pass, they still won’t beat the £7.1m reported in 2019, and that was not enough to lift the stock price anywhere near its all-time high.

The lawsuit might prove successful. But, investors banking on a significant cash return might be disappointed. Any award gained will be reduced in keeping with that litigation financing agreement. I expect what is left to be reinvested in the business rather than distributed to shareholders.

Nanoco remains a highly speculative penny stock. As such, it does not chime well with my risk tolerance. With these types of stocks, I prefer to wait until something — like sustained revenue increases or perhaps an operating profit — happens to give me confidence in the stock’s prospects before I consider investing. For me, Nanoco is not there yet.

The penny stock owns and operates office blocks, shopping malls, resorts, warehouses and other property assets across eight or so African countries. Its real estate can be found in some of the continent’s brightest economies like Kenya and Morocco too.

Grit Real Estate is well-placed to exploit soaring economic growth in Africa then. And because it operates across various sectors spanning multiple countries the business offers investors added security by diversification too. I think it’s worth serious attention despite the low uptake of Covid-19 vaccines in Africa. This creates the possibility of economic turbulence if infection rates soar again.

Riding the lithium boom

Soaring sales of electric vehicles (EVs) offer plenty of opportunity for savvy UK share investors. I’ve invested in auto parts manufacturer TI Fluid Systems to play this theme. And I’m thinking of buying shares in IronRidge Resources (LSE: IRR) too, which is developing the Ewoyaa lithium spodumene project in Ghana.

Buying mining shares can be risky business. Exploration and production activity can often run into trouble, resulting in higher-than-expected costs and disappointing revenues. There’s also a possibility that the element a company is mining for could plummet in price if market supply soars or demand sinks.

There’s a lot I like about IronRidge Resources however. I like that Piedmont Resources is investing $102m to fast-track development of Ewooya. I’m also encouraged by its Ghanian lithium asset being one of the ‘greenest’ out there. It’s a quality that could significantly boost demand for its shares from ESG investors as the sustainable investment theme takes off.

And another thing, I’m confident that lithium prices will rise strongly in price. The rate at which EVs are growing means that lithium demand — a key component in these vehicles’ batteries — is likely to outstrip production growth by a large margin.

Another top ESG penny stock

I think Nanoco Group’s (LSE: NANO) another penny stock that could draw increasing attention from ESG investors. The business manufactures displays, electronic goods and lighting fixtures using its highly-patented nano-material technologies. These help customers cut their energy usage and, on top of this, they are made without using toxic heavy metals.

It’s important to remember that Nanoco is reliant upon a small number of companies to drive revenues. Therefore any contract losses from one of these core customers could have a significant impact upon profits.

However, I think the use of its products in fast-growing, next-generation sectors like the Internet of Things and automation still makes it worth close attention. I also like the fact it has more than 700 patents on its products, providing strong protection against potential imitators that should help it win future business.

I own a number of ESG stocks. Biffa and TI Fluid Systems even sit on the London Stock Exchange’s Green Economy Mark list. Companies and funds that meet this criteria “derive more than 50% of their revenues from products and services that are contributing the environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy.”

Investors don’t need to settle for lower future returns by buying ESG stocks either. I certainly expect the stocks I mentioned above to make me decent long-term profits as the recycling industry grows (in the case of Biffa) and electric vehicle sales take off (TI Fluid Systems).

Here are two other top-quality ESG stocks I think could make me lots of money. I even think billionaire investor Warren Buffett would approve of them!

An ESG stock I also own

DS Smith (LSE: SMDS) is another stock on the Green Economy Mark list I currently own. It recycles paper back into boxes and other packaging products. And it collects the corrugated packaging once it’s been used, significantly reducing waste in the process. It’s also sold off all its plastics-manufacturing assets and has plans to become carbon Net Zero by 2050. I think this FTSE 100 company could make me terrific returns as e-commerce grows rapidly.

Now DS Smith faces a problem in the form of soaring paper costs. But I think Buffett would like this UK share because its colossal manufacturing and distribution network gives it economies of scale that helps it beat many of its rivals on cost. The business is in the process of building two new packaging plants in Italy and Poland to keep growing its global footprint.

A penny stock Warren Buffett might love

I think Nanoco Group’s (LSE: NANO) another stock Buffett would really like. In this case its long-term competitive advantage — or economic moat as he would say — is that it has a considerable portfolio of around 700 patents in the field of quantum dots. Incidentally, the company’s currently litigating against Samsung over alleged patent infringement.

One risk here is that litigation’s a long and expensive process. This has the capability to stretch penny stock Nanoco’s balance sheet to the limit and hit investment in other parts of the company.

But I still think this ESG stock could be a great long-term buy as its nano-materials are becoming increasingly popular in the manufacture of displays, electronic products and lighting. Nanoco’s products contain no toxic heavy metals and can help improve energy efficiency, hence its Green Economy Mark status.

I don’t know when the new bull market will begin. But history shows that stock markets have always risen strongly as the economic cycle moves from recession and back into growth. I’m confident that the following penny stocks could soar in value during the 2020s. I think buying them today could end up making me a fortune.

#1: The Russian e-revolution

Getting exposure to the e-commerce explosion is a brilliant investment idea in my opinion. I’ve chosen to do this is by buying shares which provide logistics and warehouses services in Britain like Clipper Logistics. I’ve tipped Tritax Eurobox as a buy, too, a property giant which offers the same services on mainland Europe.

I believe that buying Raven Property Group (LSE: RAV) is another great way to play the e-retail boom. This is a penny stock which owns and operates a string of warehousing assets in Russia.

On the one hand, investing in companies operating in Russia can be risky. The country’s economic fortunes are tied very closely to energy prices. And this could be a problem for Raven investors as the world moves towards renewable power sources and away from fossil fuels. Still, I think the rate at which the Russian online retail market is expected to rise over the next few years (at least) still makes this UK property share worthy of serious attention.

The experts at Statista, for example, describe Russia as “one of the major emerging online commerce markets worldwide.” As a result they think e-retail there will more than treble in size between 2020 and 2024, to 7.2trn roubles. It’s a theme which Raven, whose properties are concentrated on the metropolitan areas of St Petersburg and Moscow, is well placed to exploit. Of course, investing in emerging markets brings its own risks, including less stringent regulations, foreign exchange considerations, and political risk.

#2: Another top penny stock

I also think the Nanoco Group (LSE: NANO) share price could soar during the new bull market.

This penny stock manufactures cadmium-free quantum dots and other nano-materials. These are used in the production of displays, advanced electronics, lighting, and biological imaging. Nanoco has well over 700 patents in the fast-growing nano-materials industry, a market which will looks bound to pick up further during the eventual economic upturn.

I also think the new agreement Nanoco signed with microchips giant STMicroelectronics last May is encouraging. The five-year framework agreement will see the penny stock company develop and supply nano-materials for a variety of infra-red sensing applications. Bear in mind, though, that Nanoco is reliant upon a small number of key customers to drive revenues. The loss of a critical US customer a year ago took a huge bite out of billings last year. Losing another client could be bad news for the share price.

Nano-materials are very small with dimensions typically in the range 1 – 100 nanometres, and used for optical and electrical applications. Quantum dots, meanwhile, are a subclass of nano-material with size-dependent optical and electronic properties. Nanoco makes them for use in displays, lighting and biological imaging because they can be tuned to emit light at different wavelengths across the visible and infrared spectrum.

A long haul in research and development

The company has been around since 2001, suggesting that research and development activity has also been going on a long time. But the fruit of its labour is “a world-class, patent-protected IP portfolio generated both by its own innovation engine, as well as through acquisition.” It also has non-exclusive manufacturing and marketing licensing agreements in the area of display products with The Dow Chemical Company, Merck KGaA of Germany and Wah Hong Industrial Corporation of Taiwan.

Revenues capable of generating profits remain elusive, although today’s full-year results show some progress with the figures. Revenue more than doubled to £3.5m compared to the year before, and billings increased to £6.5m, compared to £1.1m the prior year. There was still a loss after tax of £6m in the period, albeit down from more than £9m last year. The directors said that £1.5m was saved on costs and they have contingency plans to reduce costs further and save cash if there are further delays to commercial revenue streams. Right now, they think commercial revenues will crank up in the first half of 2020.

No-one knows if sufficient cash from operations will roll in before the money in the bank runs out. The company raised a net £7.9m from the stock market in November 2017 and said its cash position stands close to £10m, which it thinks will last until operational cash inflows pick up in 2020. If the income is not as high as expected, or if more delays materialise, I think we should expect another fund-raising event down the road.

On the cusp of commercialisation?

Yet, I find it reassuring that other stakeholders have some skin in the game. In the area of nano-materials for the electronics industry, an undisclosed US company bunged Nanoco £2.6m in milestone payments and fees relating to material development and supply agreements. The US company also made an advance payment of £2.9m, discounted against future product sales so that Nanoco can develop new manufacturing facilities in Runcorn.

Chairman Dr Christopher Richards said in the report said that “some potentially very attractive” commercial opportunities have emerged in the short term. He said the firm is “actively engaged in potentially transformative technological and commercial activities.” 

Although the long-term outlook appears to be positive, the directors are preparing for the possibility of delays in the commercialising process, which sounds like a pragmatic tactic. The share price has been weak, but I think Nanoco is one to keep a close eye on because it could be on the cusp of a commercial breakthrough. We’ll find out more over the next year or so.

I wasn’t previously familiar with quantum dots. They’re “fluorescent semiconductor nanoparticles” that are typically around 1/1000th the width of a human hair. They absorb energy from light and re-emit the colour in a different colour. They can be used in LCD displays such as computer monitors and televisions to provide vivid, bright colours.

Unfortunately many quantum dots contain cadmium, which is a heavy metal that’s apparently a proven carcinogen. Regulatory pressure to reduce the use of heavy metals in electronics is growing, so Nanoco has focused on developing cadmium-free quantum dots. I’d imagine that demand for this technology could rise rapidly, if it’s commercially successful.

About to hit the big time?

Nanoco published its half-year results this morning. The group reported good progress on several fronts. The company now has “an increasing number of Nanoco-equipped display products moving through to commercial production with customers in Asia”.

The first commercial products using the firm’s technology are expected to reach the market in 2018, so the company could soon start to receive revenue for commercial sales. Analysts expect the group to make a loss of £6.4m on £6.1m of revenue in 2018. In 2019, Nanoco is expected to make a profit of £12.4m on £24.1m of revenue.

To bridge the gap before sales revenue is expected to start flowing, Nanoco completed an £8.6m fundraising in October. Based on the firm’s H1 cash burn of £4.5m, I believe this could be enough to see the business through to break-even.

Should you buy Nanoco?

Consensus forecasts for 2019 put the firm’s shares on a forecast P/E of 15. That seems quite modest, but it’s worth remembering that we don’t yet know how well Nanoco products will sell in the market.

This is too speculative for me, but if you’re comfortable with the risk, I’d continue to hold the shares following today’s figures.

One stock I would buy

I prefer to invest in companies that are already profitable and delivering sustainable growth. One of my favoured stocks in the tech sector is network technology testing and analytics group Spirent Communications (LSE: SPT).

The group’s recent full-year results showed that 2017 was a successful year, despite some customer delays in the US. Adjusted operating profit rose by 27% to $58.9m, while adjusted earnings were 43% higher, at 7.55 cents per share.

Adjusted operating costs were cut by $16.7m, which helped to lift operating margins to 13% and double free cash flow to $56.4m.

Looking ahead at 2018, the outlook remains strong. Consensus forecasts suggest that the group’s earnings will rise by 10% to 8.3 cents per share this year, and then by a further 20% to 10 cents in 2019.

These projections put the stock on a 2018 forecast P/E of 21. The group’s dividend policy suggests to me that a payout of about 4 cents per share is likely this year, giving the stock a forecast yield of around 2.2%.

This isn’t a cheap stock, but it’s one I’d be happy to buy for long-term growth. However, Spirent’s share price has been quite volatile over the last few years. I suspect the best trading strategy here is to buy on the dips.

The share price had slumped at the time, and by market close Wednesday we’d seen a fall of more than 60% since a peak in July 2017.

But Thursday saw a 50% spike, with the price reaching 36.5p in morning trading, after the company revealed it has signed a supply and development agreement with an as-yet-undisclosed US company.

Nanoco said the deal means it “will scale-up and mass-produce novel nano-particles for advanced electronic devices and supply them from its state-of-the-art production facility in Runcorn, UK.“

Expanding the Runcorn facility to cope with the quantity of materials needed will require capital expenditure, and the contract partner will contribute.

Turning point?

These are obviously still early days, but with commercial supply expected to begin in early 2019, it’s looking like a serious stream of cash really might not be too far in the future now. Liquidity was always going to be a key issue as it is with any ‘blue sky’ growth company — even if it’s successful, early investors can still be diluted out, depending on how much cash needs to be raised to reach profitability.

Some of that worry has now been lifted, especially as today’s news comes on the back of a couple of earlier agreements. 

With Nanoco having net cash of £5.7m at 31 July 2017, and a placing having raised an additional £8m late last year, I’m cautiously optimistic.

Multibagger

Shares in Elektron Technology (LSE: EKT) have had a better time, trebling in two years to 23.5p, with Thursday’s full-year trading update providing a small boost.

The cloud-based technologist reported a 10.9% rise in total sales for the year.

Checkit, which “continues to make progress with its real-time operations management product suite,” brought in a 66.7% rise in sales. That is the firm’s smallest unit, though, with just £0.5m in sales, but Elektron’s biggest business seems to be performing solidly too — sales of £27.3m from the Bulgin arm amounted to a 13.3% rise.

The only sales downside came from IMC, with a 12.9% fall to £2.7m.

Orders received during the year amounted to £33.1m, up 17.8%. Net cash rose from £1m at 31 January 2017 to £5.1m a year later, though that does include £1.9m from the disposal of Sheen Instruments, Digitron and Titman Tip Tools.

Should we buy?

Elektron told us its order book for the new financial year currently stands at more than £9m, which looks like a healthy start. And its disposals, it says, enable it to “focus solely on the businesses which the board believes offer greatest potential for growth.”

The problem is, it’s difficult to value the shares right now, as the company appears to be just on the point of turning a profit. Results for the first half showed an operating profit of £0.1m (from a loss of £1m a year previously), and positive EPS of 0.1p (from a loss of 0.6p). 

I’d want to see full-year results, and maybe one more year’s worth, in order to put some meaningful fundamentals together. For now I’m on the fence.

Trending lower

Once a bulletin board favourite, Nanoco (LSE: NANO) has been a disappointment in recent years. The £60m market cap company manufactures quantum dots – miniscule fluorescent semiconductor nanoparticles that emit different colours, and are used in applications such as lighting, bio-imaging and solar energy. While the technology sounds interesting, Nanoco has failed to deliver for shareholders.

The company’s financials don’t make for great reading. For example, last year revenue fell to £0.47m from £2.03m the year before, and the group recorded a net loss of £10.6m. While revenue is expected to climb to £1.55m for the year ended 31 July, another hefty net loss of £9.8m is anticipated.

Furthermore, the group has struggled to generate adequate cash flow, and was forced to raise £8.6m last week at a significant discount to the share price at the time. That’s clearly a disappointment for existing investors, as the fundraising will dilute their shareholdings significantly. 

Nanoco’s share price has been locked in a downtrend for the past four years now, declining from around 180p to 26p today. With that in mind, I’ll be steering well clear of the company.

Surging higher

However, as a contrast, one small-cap company that looks very interesting, in my opinion, is £140m market cap Bioventix (LSE: BVXP). Trading at just under 1,400p at the start of the year, the shares now change hands for 2,900p, a year-to-date gain of over 100%. Furthermore, since moving to AIM in 2014, the stock has risen by an amazing 400%.

So what’s all the hype about and more importantly, can the momentum continue?

Bioventix specialises in the development and commercial supply of sheep antibodies for use in immunodiagnostics. Antibodies are proteins that are produced by the immune system to help stop viruses, infections, bacteria and disease harming the body, and Bioventix claim that its sheep-derived antibodies are more effective than traditional rodent-based varieties. The firm earns revenue by licensing its products to other companies that use them for clinical diagnostic applications such as blood testing.

A glance at Bioventix’s financials reveals a spectacular set of numbers. Over the last three years, revenue has risen from £2.7m to £5.5m, and earnings per share have surged from 30p to 68p, a compound annual growth rate (CAGR) of 31%. Equally impressive have been the company’s operating margins and return on equity, which last year, were 76% and 42% respectively. Dividend growth of 190% over the last three years has also been recorded. 

Interim results in March saw sales rise 32% to £3.1m, and profit before tax increase 49% to £2.5m. Then, in early September, the group upgraded its full-year profit guidance, stating: “Both revenues and profits before tax are expected to be ahead of market expectations for the year ended 30 June 2017.”

So it’s pretty clear, to my mind, that Bioventix has strong momentum at present. Is it too late to jump on board? On consensus FY2017 earnings estimates of 89.3p, it currently trades on a P/E ratio of 32.5. While that valuation is no doubt high, it doesn’t look entirely unreasonable in my view, given the company’s track record and growth prospects.

On the other hand, I concluded that if no deals emerged, it “may be a sign” that the firm’s technology is “not worth paying for,” which would be bad news for investors and the firm’s outlook. 

Six months on and it looks as if Nanoco’s outlook has improved significantly, although the company still has plenty of work to do.

Moving forward 

Since April, it has received two substantial orders. The first came from Wah Hong Industrial Corporation, one of the world’s largest manufacturers of optical films and sheets for the display industry, for the supply of resins containing Nanoco’s cadmium-free quantum dots. And the second commercial supply order came from a medical devices firm. The products will be used in light therapy products for the treatment of pain, soft tissue injury and dermatologic conditions. 

So Nanoco is making progress and management believes that the company’s outlook is improving, albeit at a slower rate than expected. New products in the pipeline should help fuel further order growth and recently-signed contracts should help spread the word about the firm’s product offering. 

Still, despite the company’s steady progress, revenue and income remain elusive. More importantly, cash is in short supply, and yesterday Nanoco announced that it was going to conduct an £8.6m fundraising at 18p per share, a discount of approximately 35.7% to the closing mid-market price of 28p per share on 3 October. After this cash call, existing investors will have been diluted by around 20%. 

This fundraise and dilution is disappointing, but it shouldn’t have come as a surprise to investors. Even though City analysts are forecasting revenues of £1.5m for the fiscal year ending 31 July, growing to £6m for the following year, losses are projected for the next two years at least. For fiscal 2018, analysts are expecting the company to lose £6m, consuming two-thirds of the recent cash call. 

And with no profits projected for the next few years, it’s challenging to try and place a value on shares in Nanoco. Even though the company has managed to ink some orders for its quantum dots products, the business is in its early stages and therefore not suitable for most investors. 

Indeed, there’s no guarantee that yesterday’s cash call will be the last one and investors should prepare for more dilution as this small-cap builds out its operations. 

The bottom line 

So overall, even though Nanoco has made some progress over the past few months, the company has a long road ahead of it. There’s also the risk of further dilution from share placings. 

Personally, I’d like to see positive cash generation from the business before buying, as well as more sales contracts. 

However, with a wide margin of safety, strong business model and improving income prospects, easyJet could be a star performer in the long run. Alongside another, smaller, recovery stock, it could be worth buying right now.

Changing outlook

In the last couple of years, easyJet has faced a difficult set of trading conditions. The fall in fuel prices has cut costs for airlines, but has also meant that competition has increased. As well as this, demand across the industry has declined on terrorism concerns. This has contributed to a fall in sales and is a key reason for the company’s disappointing 2017 earnings outlook.

However, easyJet’s 2018 performance could represent a major improvement on that of 2017. It is expected to record a rise in earnings of 20% next year, a large portion of which is due to the company’s strategy. It has sought to boost capacity and also deliver a firmer load factor in recent quarters. This is in addition to the investment it has made in customer service and a focus on business passengers – both of which have strengthened the company’s customer base.

Investment potential

Despite its upbeat outlook for 2018, the stock trades on a price-to-earnings growth (PEG) ratio of only 0.6. This suggests that its 12% decline of the last three months may only be temporary, since its shares now offer a wide margin of safety.

As well as growth and value appeal, easyJet also remains a top income stock. It has a forward dividend yield of 4%, which is 20 basis points higher than that of the FTSE 100. Since dividend payments are set to be covered more than twice in 2018, there appears to be scope for further dividend growth over the medium term. With inflation moving higher and forecast to rise in future months, easyJet could become an even more attractive stock to own for the long term.

More recovery potential

As well as easyJet’s recovery potential, another company could deliver a turnaround in the long run.  Developer and manufacturer of cadmium-free quantum dots (CFQDs) and other nanomaterials, Nanoco (LSE: NANO), has recorded a share price decline of 32% in the last three months. In fact, it released a full-year trading update on Friday which sent its share price 6% lower.

While its market is continuing to develop more slowly than originally anticipated, it is nevertheless making good progress with its commercialisation of CFQDs and is anticipating further orders from its pipeline of projects. It has a competitive advantage over rivals due to its market position, and its net cash position means it seems to have the financial strength to deliver improved share price performance in the long run.