A penny stock for the EV revolution

It’s obvious by now that electric vehicle (or EV) sales are set to explode over the next decade. Major carmakers are doubling down on the production of low-emission vehicles, a trend that bodes well for suppliers of key EV materials. This is why I’d buy Rainbow Rare Earths (LSE: RBW) for my shares portfolio.

This stock owns the high-grade Gakara neodymium and praseodymium project in Burundi, East Africa. These elements are then used to make the magnets that propel EVs along. To give an indication of the size of the market, the International Energy Agency (IEA) thinks electric car sales will surge to 15m in 2025 and 25m in 2030. This compares with the 3m low-carbon vehicles that rolled out of showrooms last year.

Buying mining shares like Rainbow Rare Earths can be risky business. Unexpected production problems can be commonplace, driving costs higher and hitting revenues hard. Still, it’s my opinion that the potential rewards on offer at this particular miner offset the dangers.

Golden oldie

The Old Mutual (LSE: OMU) share price fared particularly badly in November. It’s fallen a meaty 18% in just a fortnight as a direct result of the ongoing public health emergency. Investors first raced for the exits when the insurer warned it had taken a hit of ZAR6.6bn in the nine months to September due to excessive Covid-19 deaths.

The news worsened the sense of panic around Old Mutual when it subsequently emerged that the Omicron virus variant was spreading rapidly in Old Mutual’s key territory of South Africa. As I type, the financial services provider is now trading well inside penny stock territory blow 57p.

I think this recent drop could provide a decent dip-buying opportunity for me, however. The ongoing pandemic is something that shouldn’t be underestimated. But as a long-term investor there’s a lot I like about Old Mutual. First, I like its position as one of Africa’s most trusted brands, a critical quality when it comes to looking after people’s money.

8% dividend yield!

I also think profits here could jump because of rising wealth levels and historically-low financial product penetration in its emerging markets. Financial institutions in Africa now hold a whopping $1.41trn worth of assets, according to Statista.

Old Mutual now trades on a price-to-earnings (P/E) ratio of just 7.6 times for 2022. This is the sort of value for money that warrants serious attention in my book. Meanwhile the financial giant also sports a dividend yield just under 8%. Like Rainbow Earth Minerals, this is a penny stock I’m seriously considering loading up on today.

As a long-term investor, however, Revolution Bars is a share that’s still drawing my attention. The business operates dozens of premium bars across the country. It’s therefore well placed to exploit the trend of consumers spending ever-higher proportions of their income on going out. Leisure spending in Britain has been growing at twice the rate of retail in recent times.

Most recent trading data from Revolution Bars has illustrated the robustness of this trend too. Between 19 July and 2 October the business saw sales jump 17% compared with the same period two years earlier.

A rare beauty

I also like Rainbow Rare Earths (LSE: RBW). Demand for rare earth metals has rocketed over the past decade as the manufacture of mobile phones, computers and other consumer electronics has boomed. Elements like neodymium and praseodymium (commonly known as NdPr) are essential components in making such hi-tech devices run. Some analysts think that demand growth will move up several notches too as the green technology revolution kicks off.

Take the boffins at investment firm CITIC, for example. They’re predicting that “downstream demand for rare earths is expected to continue to improve” as sales of low-emission cars, wind turbines and special energy-saving air conditioners rise. At the same time CITIC thinks supply from China, the world’s largest supplier of rare earths, will fall as local lawmakers clamp down on unregulated production.

All this bodes well for NdPr prices for the first part of the decade, and by extension profits at Rainbow Rare Earth. Through its Gakara project in Burundi the company is sitting on one of the richest rare earths resources on the planet. Mining is a notoriously difficult business and setbacks can deal a significant blow to profits. However, I think predictions of soaring demand still make this penny stock very attractive today.

A penny stock for 2022 and beyond?

I think Futura Medical could be on the cusp of delivering explosive revenues growth. In a potentially game-changing year, the business — which has high hopes for its MED3000 erectile dysfunction gel — has received the green light to begin trials in the US. And it now has the critical ‘CE’ marking in European markets, as well as having signed key licensing agreements spanning the globe.

Futura has a battle on its hands to take on Pfizer’s market giant Viagra. But the fast-acting nature of its product could still make it a winner in a rapidly-growing market. That’s providing trials of MED3000 yield positive results in 2022. It’s estimated that global impotence rates will have doubled between 1995 and 2025.

Here are what I consider to be two of the best penny stocks I’d buy right now.

Pot of gold

I think Rainbow Rare Earths (LSE: RBW) could be a great one to buy for the next 10 years at least.

The 17 metallic elements that make up the rare earth spectrum are essential in the manufacture of a broad range of electronic products. They can be found in mobile phones, wind turbines, camera lenses, catalytic converters and x-ray machines among other things. And some experts believe that supply of these special metals will fail to keep pace with booming consumption. Analysts at Adamas Intelligence think the problem will worsen too. They reckon that the “demand growth of the 2020s will soon be dwarfed by the astronomical demand growth of the 2030s.”

This bodes extremely well for prices of the metals and consequently profits at the likes of Rainbow Rare Earths. This particular mining play holds a 90% stake in the Gakara project in Burundi, one of the richest rare earth deposits on the planet. I’d be aware, though, that some electric car manufacturers are taking steps to reduce the use of rare earths in their vehicles. Falling demand from this key market could have a significant impact on rare earths demand.

Another penny stock I’d buy

I think Airtel Africa (LSE: AAF) is a stock that could also deliver splendid returns over the next decade. The company offers telecoms and mobile money services across 14 African countries including continental powerhouses Nigeria and Kenya. It therefore has two chances to exploit soaring personal income levels in these emerging markets.

Airtel Africa’s customer base grew by 8.4% in the three months to June 2021, to a whopping 120.8m people. Its mobile data business grew its base by almost 15% year-on-year in the quarter. And its mobile money division’s customer numbers rose by an eye-popping 25% over the period. No wonder major businesses like Mastercard and the Qatar Investment Authority have been lining up recently to buy a stake in Airtel’s financial services business. EY Club estimates that as many as 60% of Nigerians, for example, don’t have access to a bank account.

It’s important for me to remember that Airtel Africa isn’t the only major player in these fast-growing markets. Telecoms titans like Vodafone and Africell are also spending heavily to build their own customer bases. Global blue-chips like Vodafone and local operators like PalmPay and Paystack are also rapidly investing in the mobile payments market. That doesn’t quash my belief that Airtel Africa could still deliver explosive returns over the next 10 years, however.

Best of the Best

This time last year, shares in online competition firm Best of the Best (LSE: BOTB) were changing hands for 395p. Yesterday, the price closed at a staggering 3120p. Clearly, people have been very keen to win cars and other prizes while being forced to stay at home.

Back in February, the company revealed that strong trading had continued into the third quarter and that it remains likely to outperform management’s previous expectations. In fact, things have been going so well that BOTB has now removed its ‘for sale’ sign.  

Despite rising by so much, I think this UK share could head higher. Analysts are forecasting a 14% jump in earnings in the next financial year. This gives BOTB a price-to-earnings (P/E) ratio of 21. That still looks very reasonable when you consider the outsize returns on capital and decent operating margins it achieves.

On the flip side, one does need to consider whether trading will remain quite so stellar once lockdown restrictions are fully lifted. So, as much as I like to ‘run winners’, I’d be mightily tempted to take some money off the table if I were invested.

Rainbow Rare Earths

A second company worth highlighting is Rainbow Rare Earths (LSE: RBW). One year ago, its shares were 1.45p. Yesterday, they closed at 17.75p! 

Much of this momentum is probably due to the buzz surrounding renewable energy. Rare earth metals (such as neodymium and praseodymium) are used in magnets for electric vehicles and wind turbines. Importantly, they have no known substitute.

Rainbow looks well placed to capitalise on demand eventually outstripping supply. Its Gakara Project in Burundi gives out one of the highest-grade concentrates in the world. 

However, where the RBW share price goes in the rest of 2021 is difficult to say. Mining stocks are notoriously volatile and some profit-taking would be understandable after such a strong recovery.

Then again, I also wouldn’t be surprised if many investors elected to stay put. With countries looking to secure their supply chains (China already controls 80% of the rare earth market), there could still be quite a bit of upside ahead.

Naked Wines

A final UK share that’s done extremely well for holders is online wine seller Naked Wines (LSE: WINE). Sure, the share price hasn’t performed quite as brilliantly as BOTB or RBW but we’re still talking about a gain of 200% or so. If only I’d backed my judgement back in 2020!

As one would expect, Naked has benefited hugely from the UK lockdowns. Back in November, it revealed a near-80% rise in revenue (to £157.1m) for the six months to 28 September. Since we’ve had yet another lockdown in 2021, I believe the full-year numbers will be just as good. An update is due in a couple of weeks. 

The question, however, is whether demand is likely to moderate when we’re allowed to visit the pub again.  I suspect this might be the case. For this reason, I would probably only take a small position now.