I’ve been looking for stocks to buy. And one recent addition to my portfolio is waste-to-product company Renewi (LSE: RWI).

With the share price near 785p, the FTSE Small Cap business has a market capitalisation of around £622m. And that’s well above my self-imposed lower limit of £100m.

Room to grow

I like investing in small-cap companies because they often have more room to grow over time. However, I’m not keen on the extra risks and volatility that often come with the tiniest stock market constituents.

On 14 July, Renewi released an upbeat first-quarter trading statement. In the three months to 30 June, revenue and earnings were ahead of the prior year just as the directors had previously expected.  

One risk is that the business has a history of lumpy earnings with rises in some years and declines in others. And City analysts expect that pattern to continue. There’s also a fair amount of debt on the balance sheet.

However, revenue looks set to continue its steady rise. And I reckon the firm operates in an attractive sector, given the environmental concerns of the modern world.

Meanwhile, the forward-looking earnings multiple is running around 10 for the trading year to March 2024. I think that valuation looks fair rather than cheap.

At the other end of the scale, I bought some shares in the FTSE 100 banking and financial services company HSBC (LSE: HSBA). With the share price near 517p, the market capitalisation is around £105bn.

Earnings look set to surge

Bank stocks can act as early predictors of recessions and downturns. Their share prices are often among the first to plunge. However, HSBC has been range-bound for most of 2022. And my bet is the price would probably have already plunged if it was going to in the current economic environment.

Earnings have been holding up well. And after a single-digit decline in 2022, City analysts predict a strong double-digit advance in 2023.

It’s always possible for any company to miss its estimates. But I’m hopeful that the market will look more favourably upon HSBC if the economic and geopolitical storm clouds clear in the years ahead. Meanwhile, the valuation looks attractive to me with the dividend yield running just above 5% for the current year.

The third recent addition to my share account is software specialist Netcall (LSE: NET). With the share price near 85p, the market capitalisation is around £131m. And the business can be found in the FTSE AIM ALL-SHARE index.

Fast growth, racy valuation

This is a fast-growing proposition with a racy valuation to match. City analysts expect earnings to shoot up by more than 30% in the current trading year to June 2023. And the forward-looking earnings multiple is running near 34.

I accept that a high valuation brings additional risks. If the company runs into an operational setback and misses its estimates, the share price could plunge. However, on 20 July, Netcall issued a trading update with the headline: “Strong demand driving results above FY22 market expectations”.

There are no guarantees of a positive long-term investment outcome with any of these companies. But, for the time being, things look positive. 

My plan is to hold the stocks for years as the market recovers and operational progress unfolds in each enterprise.

The company released its half-year report yesterday and the shares surged a huge 11% on the day. I put this stock on my watchlist last year, so is it finally time to buy or am I too late?

Renewi’s business

Renewi is a waste-to-product company. Its services include waste collection, recycling and treatment of commercial waste.

Renewi operates through three broad divisions: Commercial, Mineralz & Water, and Specialities. But it’s Commercial that generates the most revenue. It’s this division that does the collecting, sorting, treatment and recycling of waste materials. After the company collects and sorts the waste, it’s able to produce such things as paper, glass, wood chip, and even green energy too.

There are some great stats on the company website showing successful outcomes from its operations. As an example, 65% of the waste received last year was recycled, and there was enough rubble to create 15,000 houses!

It’s easy to see why an ESG-focused investor would be interested in the shares.

The half-year report

The company has a clear ESG theme, but I also want to know how it’s doing financially before I consider buying the shares.

In the half-year report this week, it said revenue increased 11% to €916m. Most impressively though, underlying earnings before interest and tax (EBIT) rose 125% to €63.8m. It was the Commercial division that performed so well as the EBIT margin increased by 4.7% to 9.6%.

For me, this increase in margin is great to see. In fact, a reason I had it only on my watchlist originally was because margins were a bit thin. Last year, for example, the gross margin was 15.9%, and the EBIT margin was only 4.3%. I have a strong bias for businesses with high margins, and this company didn’t fit the bill, so things could be changing.

The board at Renewi also issued a strong outlook statement in the half-year report, confirming that expectations are being upgraded again for the year ending March 2022.

Closing thoughts

I’m hugely impressed by Renewi’s half-year report. In particular, the increase in EBIT margin does help to answer a concern I had over low margins in the business. There’s also the ESG boost I think the company will benefit from for years to come.

I do still note the considerable investment the company has to make each year.  Last year alone, €66.8m went on capital expenditure, and net income was only €18.2m. The business is very capital intensive, and can help to explain why return on capital employed consistently averages low single-digits.

With all that in mind, I’m happy to keep the stock on my watchlist for now.

Turning plastics into profits

I’ve explored Renewi before. But as a quick reminder, this is a waste-to-product recycling business. Every year its facilities process around 14 million tonnes of garbage back into usable raw materials such as paper, metals, plastics, glass, wood, and even energy. Given the world is on a mission to cut carbon emissions, this ESG stock definitely seems like an active participant in this objective.

Last month, management released a short trading update that sent a clear message — business is going well. But it wasn’t until this morning that the market got to see precisely how well. And given the direction of the Renewi share price, I think it’s fair to say investors are quite pleased.

Over the last six months, revenue has grown by a respectable 11% to €916m thanks to rising recyclate prices. But the real star of the show was underlying profits. With pandemic-related cost savings being retained, operating margins have jumped by 4.7%. Combining this with higher recyclate prices led to earnings before interest and taxes skyrocketing 125% from €28.3m in 2020 to €63.8m today. At the same time, the firm’s net debt position also saw an €8m improvement.

Needless to say, this was a pretty impressive report. And management is once again increasing its performance expectations for its 2022 fiscal year. So, seeing the share price explode is hardly surprising.

The threats to the Renewi share price

As exciting as the ESG stock’s progress is, there remains a long road ahead. Beyond processing commercial waste, Renewi also has a division focused on treating water and compost. Its Mineralz & Water segment did show signs of growth, with revenue climbing by 4%. However, this is down from 21% a year ago due to the pandemic creating delays in issuing waste-import licences.

The adverse effects of Covid-19 are starting to wane, so this is ultimately a short-term problem. But it’s unclear just how long it will remain an issue. And if delays were to continue getting longer, it could cause management’s upgraded guidance to be over-optimistic. Obviously, if growth starts to slow, the Renewi share price could be in for a tumble.

Time to buy this ESG stock?

The last time I looked at Renewi, I decided to keep it on my watchlist. But after these latest results, I’m now considering this business for my portfolio. With investors becoming more ESG-focused and the demand for its services unlikely to fall any time soon, I believe its share price has plenty of potential over the long term.

Forecast-beater

I think Ibstock (LSE: IBST) could be a great UK share to buy right now. In fact, I own shares in the brickmaker and believe the next trading statement on 3 November could be another barnstormer.

Ibstock said in August’s most recent update that it expected full-year EBIDTA to be “modestly” above expectations after announcing a 54% rise in revenues between January and June. Sales have been fast approaching pre-pandemic levels of late, it said, thanks to the strength of the UK’s housebuilding sector and robust spending on home improvements.

I’m convinced demand for Ibstock’s bricks will remain robust too. The colossal level of savings accrued during Covid-19 lockdowns means that DIY-related expenditure should remain favourable. And a mix of historically-low interest rates, an ultra-competitive mortgage market, and ongoing government support for first-time buyers should provide plenty of incentive for the housebuilders to keep building too.

Ibstock could experience a sales dip if broader economic conditions continue to worsen. This could deal a blow to housebuyer confidence and prompt consumers to tighten their purse strings. But to my mind these problems are more than reflected in the brick manufacturer’s ultra-low share price.

City analysts think the company’s earnings will soar 25% in 2022, leaving it trading on a price-to-earnings growth (PEG) ratio of 0.5 for next year.

A reminder that a reading below 1 suggests a UK share could be undervalued. Another forecast-beating update then could well help Ibstock’s share price rise sharply again in November following recent weakness.

Another cheap UK share I’d buy

I’m also thinking of buying Renewi (LSE: RWI) shares for my investment portfolio in November. I believe the recycling giant is a top long-term buy as the escalating climate emergency will steadily boost demand for its services. I think Renewi could be a particularly great stock to own next month too, as its share price also could jump when half-year financials come out on 9 November.

Renewi’s latest trading statement this month revealed that “increased volumes, improved recyclate prices and ongoing cost management” meant that trading continued to be better than expected. It noted that like-for-like sales were up 7% from pre-pandemic levels in the five months to September, and 10% than they were a year earlier.

Renewi has made a habit of beating analyst expectations in recent times. It explains why the company’s share price has soared a whopping 240% over the past 12 months. Yet despite these gains I think it provides exceptional value. City analysts think earnings here will increase 25% in the financial year to March 2022. This results in a forward PEG multiple of just 0.5.

Changing environmental legislation in Renewi’s markets could cause long-term profits to disappoint. But as of today, things are still looking exceptionally promising. Like Ibstock, I’d happily own this dirt-cheap UK share in my portfolio today.

Recycling firm

Renewi is a waste processing business with operations in North America and throughout Europe. It is a recycling business that processes waste and uses its facilities and operations to convert that waste into usable materials. It then sells this material to firms to produce consumer goods such as vacuums and bicycles and more. Renewi states it processes approximately 14m tonnes of waste a year.

When I look for the best shares to buy now I often consider the type of investment model a stock fits in. For example, there has been a rise in ESG and ethical investing. Investor sentiment has risen in recent times towards these types of stock. I believe Renewi’s share price has increased partly due to this. Renewi has attempted to showcase its corporate social responsibility, which has boosted investor sentiment. A prime example of this is its introduction of green bonds for retail investors. 

Share price rise and performance

As I write, shares are trading for 758p. This time last year, shares were trading for 222p, which is an impressive 240% return in 12 months alone. I often see my best shares to buy now providing positive returns in a similar time period.

Aside from the investor sentiment towards businesses such as Renewi, what has caused this increase in share price? Well, Renewi has provided some good updates recently, which has helped. Its latest half-year report released last week for the six months ended 30 September 2021 was brief, but positive overall.

Renewi reported that it would be upgrading its full-year expectations in the first line of the update! It also said there were increased volumes of materials it recycled, improved recyclate prices, and continued cost management, which has supplemented better than expected trading. Revenue compared to the same period last year was 10% higher and 7% higher than the pre-pandemic trading year.

The best shares to buy now have risks

I do note some credible risks with Renewi, however. Firstly, it there’s a lack of specific data and numbers in its update. I think these would go a long way in showing progress and tangible information for potential investors such as myself.

Next, despite good progress on many fronts, it does note a lack of progress and issues in some of its divisions that could hinder progress and financials. For example, its Mineralz & Water division has experienced issues. There have been issues with fermentation and its key markets such as construction have been hampered by Covid-19. This shows not everything it does is working and that Covid-19 is still an ever present threat for Renewi.

Would I buy Renewi shares for my portfolio? No, is the short answer. I want to know a bit more and keep an eye on developments for now. It could end up being one of my best shares to buy in time with the rise in ESG investing and its progress. For now, I will look at other investments for my portfolio I consider a bit safer with more information to hand to make a decision.

A rising waste-to-product business

In the simplest terms, Renewi is a recycling company. It processes around 14 million tonnes of waste each year and uses its facilities to convert around 89% of it into usable raw materials. These can then be sold to various product manufacturers to be reused to make a wide range of items, from vacuum cleaners to bicycles.

Last week, the business published its half-year trading update. And while brief, it sent a clear message. Things are going well. Processed waste volumes are on the rise, with some of its European operations, such as in Belgium, reporting double-digit jumps. This increased demand is causing recyclate prices to climb, enabling its revenues over the first five months of its 2021 fiscal year to grow by 10%.

Consequently, management has decided to “materially upgrade” its performance expectations for the year. Detailed outlook won’t be available until the full interim results are published next month. However, given the progress being made, I’m not surprised to see the Renewi share price on the rise.

Renewi share price risks

Without precise performance figures, it’s difficult to discern whether Renewi’s recent share price boost is justified. This is especially true since there appears to be a problem fermenting within its Mineralz & Water division. This segment focuses on creating rich compost as well as clean water. However, unlike its product recycling operations, 2021 hasn’t been as impressive.

The business did manage to increase its soil throughput to over 350,000 tonnes. However, Covid-19 continues to disrupt various construction projects and create delays in processing waste-import licenses.

Consequently, the incoming volume of contaminated soil for Renewi to treat is starting to show weakness. This developing situation has been mentioned in earlier trading updates. But management now believes that the recovery time will be longer than initially anticipated, potentially leading to a significant level of lost income.

Needless to say, that’s not good news for the Renewi share price.

The bottom line

Given the rise of ESG investing and the push towards slowing down and eventually reversing the effects of global warming, Renewi’s business seems more relevant than ever. But while I like what it’s doing, it’s hard to come to a reliable conclusion about recent operations without more data.

Therefore, despite Renewi’s share price potential, I’m keeping it on my watchlist until the interim earnings report’s published next month.

Top penny stocks 

The first company on my list is the home collected credit lender Morses Club (LSE: MCL). The business provides small loans of between £200 to £1,500 with interest rates of up to 498.34%. 

Due to the ethical considerations of short-term, high-interest loans, some investors might not be interested in this enterprise. I fully understand this point of view. The sector has also faced significant regulatory headwinds in recent years, which have forced some of Morses Club’s peers out of business. 

These risks aside, I’d buy the company for my portfolio of penny stocks considering its growth potential. According to its latest trading update, customer numbers at its digital division for both short- and long-term lending products increased to 40% in the three months ended 31 May. The total loan book balance increased 99%. 

Based on these numbers, it seems to me Morses Club is on track to report a solid financial performance in its current financial year. This is why I’d buy the company for my portfolio of penny stocks despite the regulatory and ethical issues outlined above. It seems there remains a demand for these products, which the business is more than happy to meet.

Consumers also appear to rate Morses Club quite highly, with an average rating of 4.5 stars on Trustpilot.

Recovery play

The other company I’d buy for my portfolio of penny stocks is the waste-to-product group Renewi (LSE: RWI). This is a recovery investment, having reported losses in five out of the past six years.

It produced a small net profit of €11m for its 2021 financial year, although between 2016 and 2020, losses exceeded €300m. Unsurprisingly, group net debt has doubled during this period. There’s a risk that Renewi will never exit this cycle of losses and rising debt. 

However, analysts reckon it will continue to earn a profit for the next two years. Current forecasts suggest net earnings will hit €58m by fiscal 2023. 

These are just forecasts at this stage, and there’s no guarantee the company will hit the targets. Nevertheless, I’d add the shares to my portfolio of penny stocks, considering the firm’s recovery potential. 

If Renewi can hit City growth targets, the stock looks cheap. It’s currently trading at a 2023 forecast P/E of just 9. 

And even if the company struggles in the next few years, I am optimistic about its potential. The world is trying to move away from the throwaway culture, which means waste-to-product facilities could become more sought-after. This could work in Renewi’s favour. However, if the group fails to make the most of its facilities, a competitor with deeper pockets may step in and take over the enterprise. 

A rock-solid penny stock

Science in Sport (LSE: SIS) is a UK share which put in a remarkably resilient performance last year. Despite the mass closures of gyms and fitness centres the protein-powder-and-nutritional-products manufacturer only endured a fractional sales decline during pandemic-hit 2020.

Strong internet sales have helped the penny stock impress over the past 12 months. And Science in Sport is spending heavily in marketing and its platforms to make the most of the e-commerce explosion moving forwards. Online sales at the business leapt 39% year-on-year in 2020.

I think demand for Science in Sport’s goods will keep growing as people try to eat healthier and exercise more often. And the company’s investing in manufacturing and its supply chain to drive profits growth. I’d buy it for my ISA despite the fierce competition that it faces from the likes of Maximuscle.

The green machine

Renewi (LSE: RWI) is a low-cost UK share I’m backing to perform brilliantly this decade. The Covid-19 crisis has exacerbated existing concerns over sustainability and the impact of humans on the environment. It’s a theme this penny stock — which converts large amounts of the waste it receives into products or energy — is well-placed to exploit.

Demand for its services from commercial customers has only taken a slight whack despite the public health emergency. This has prompted Renewi to upgrade its profits guidance several times over the past year. And I expect the small-cap to get busier and busier as recycling becomes ever more important.

It’s true that changing legislation in its North American and European marketplaces could hit the penny stock’s earnings hard. But at current prices, I still think Renewi’s shares represent a great buy. Today, the business trades on a forward PEG ratio of just 0.1. A reading below 1 suggests a stock could be trading below value.

An electrifying ISA buy

Pulling raw materials out of the ground is notoriously difficult and extremely expensive. And this means UK shares like Bushveld Minerals (LSE: BMN) can suffer sudden and severe profits trouble. This particular penny stock is a major vanadium producer which it then uses to manufacture components for vanadium redox flow batteries (or VRFBs).

Despite these risks, I think Bushveld is a company that could deliver exceptional profits growth over the medium-to-long term. Green energy sources like solar and wind are exceptionally unpredictable, which means that hardware to store energy when conditions are favourable is essential. And with renewables rising in popularity sales of VRFBs are soaring. Meanwhile, rising energy costs mean individuals and businesses are spending more on the sort of products Bushveld manufactures too.

The experts at Valuates Reports think the VRFB market will be worth $6.2bn by 2026, up from $625.4m in 2019. It’s an upward trend that could give Bushveld Minerals explosive profits and make ISA investors like me excellent returns.

Renewi stock has been performing well

The stock is notable for having risen from around 20p last September to around 55p today. However, in January 2018 it was close to 105p, suggesting plenty more potential upside from a recovery in the underlying business.

But it’s worth bearing in mind the plunge in the stock began before the arrival of Covid 19. A combination of regulatory problems, stalled production, and high debts took its toll on investor confidence in the enterprise.

Adding the effects of the pandemic on top, there seems little doubt that Renewi became a recovery proposition. And judging by the recent rise in the stock price, recovery in the underlying business is gaining traction.

On 27 May, the firm delivered its full-year results. The report described “robust” performance and “good” progress with growth initiatives. Looking ahead, the directors declared an “improved” outlook for the current trading year to March 2022.

I think we can see why the stock’s been rising in some of the figures. Statutory profit came in at €11m compared to a loss of just over €77m the prior year. And core net debt declined to €344m from €457m. Those numbers are moving in the right direction and the directors also declared a “material upgrade” to their expectations for the current year.

Recovery and growth

The company made decent progress in the period with a number of growth projects. And chief executive Otto de Bont said the firm’s business model is driven by a transition to a “circular economy” as demand increases for recycling and higher quality recyclates. He sees more opportunities ahead for Renewi to convert waste into a wider range of secondary materials. And much of that trend will likely be driven by the policies of the EU and national governments.

Meanwhile, today’s share price near 55p put the forward-looking earnings multiple near nine for the trading year to March 2023. That valuation looks reasonable as long as operational recovery and growth continue. However, one factor to keep an eye on is the firm’s debt load. Although borrowings are lower now, they still represent a big burden to the company.

Another area of concern is that operations are low margin in nature and the business has yet to deliver decent returns against invested capital and equity. On top of that, the business has struggled to maintain earnings over the past few years. Shareholders really do need a change in fortunes to make sense of an investment in the stock now. So, I’d look for ongoing recovery and growth in earnings in the months and years ahead.

However, I’m in no hurry to buy the stock because the business still has a lot to prove. I’m watching from the sidelines for the time being.

I want to review the company to understand if this is the right ESG (environmental, social, and governance) stock for my portfolio.

The bull case for the Renewi share price

Renewi released its fiscal year 2021 results yesterday.  The results were better than the management’s estimates. The stock closed the day with a gain of 3.77%. Revenue fell by 5% to €1.7bn despite disruption from Covid-19. Underlying EBIT (earnings before interest and tax) dropped by 3% to €73m; this was above the earlier estimates. The strong performance, particularly in the second half of the year, led to the upgrade to 2022 estimates. 

Renewi’s ESG evaluation score was recently revised by Standard & Poor’s, to 83 from 75. The ESG evaluation score of 83 reflects Renewi’s above-average focus on recycling and waste management. The company benefits from operations in one of the most advanced circular economies in the world. A circular economy, in practice, is aimed at eliminating waste and continual use of resources. 

There is a growing awareness about the need to protect the environment. Governments, especially in Europe, have already taken the lead in climate protection. Renewi operates in an industry that I believe has strong long-term growth prospects. This is also evident in the words of the company’s CEO: “The transition to a circular economy will increase demand for recycling and higher quality recyclates, which supports our business model”.

Another reason why I like the company is that it has improving cash flows. This shows efficient cost handling by the management. The company’s Renewi 2.0 programme is also progressing well. It has two key themes: the first is digitisation of the business. Next is simplification and harmonisation of processes by simplifying the product offering and eliminating redundant activities. The cost of the three-year programme is €40m, and it is expected to save the company €20m annually.

Risks to consider

Recycling is a costly process. It involves huge capital investments. The margins are thin in this industry. This is also seen in the company’s financials as it reported losses in the preceding years. Only this year was the company able to report a profit of €11m. It reported a loss of €77.1m for 2020.

The company’s debt is another concern for me. It has a debt of €720m. The debt to equity ratio is 2.96, which is very high, in my opinion.

Regulatory, environmental rules, or changes in law and policy of the countries in which the company operates could add additional costs. Also, the increase in the Covid-19 cases could derail global economic growth. This would hurt the company’s earnings and negatively impact Renewi’s share price.

Taking all things into consideration. I like the company’s business model and the sector it operates. However, the low profitability and high debt is a matter of concern to me. So, I am not a buyer of the stock now. I will keep the stock in my watchlist for my ESG portfolio.