The prospect of temporary choppiness doesn’t put me off, though. This is because I buy UK shares with a view to holding them for the long haul. Let me present three top nearly penny stocks I’d buy right now to make robust long-term returns.

SaaS star

I think Tribal Group’s (LSE: TRB) recent transformation programme could reap terrific rewards in the years ahead. This low-cost UK share offers a range of software services that allow educational institutions to serve and communicate with their students more effectively. And recently the IT firm has switched to a “software as a service” (SaaS) model to boost recurring revenues and give earnings growth a shot in the arm.

The former penny stock has been active on the M&A front too and recently acquired scheduling-and-timetabling-solutions specialist Semestry. It also continues to invest heavily in its Edge cloud-based range of products and launched its Edge Admissions module last month. I think it’s a top buy despite the ever-present risk of systems failure and data loss. Such occurrences could cause significant reputational damage that might harm sales to existing and potential customers.

Another top nearly penny stock

Zoo Media Group’s (LSE: ZOO) a nearly penny stock I think will thrive in an increasingly digitalised world. This particular UK share offers cloud-based media services to movie studios, streaming services, and television producers. Not only is it benefiting from the huge investment streamers like Netflix are spending on their own content. Zoo Media is also enjoying soaring demand for its localisation services as content is beamed around the world and dubbing and subtitling is needed.

I’d buy this UK share even though its elevated valuation could cause a problem later on. Zoo Media’s forward price-to-earnings (P/E) ratio of 55 times might prompt a share price crash if news flow around the company starts to disappoint.

Pensions powerhouse

I think pensions consultancy and administrator XPS Pensions Group (LSE: XPS) is a cheap UK share that could thrive as the country’s population rapidly ages. Office for National Statistics data shows that the number of Brits aged between 65 and 84 rocketed 23% in the decade to 2018. It has been suggested that the over-65s could represent a quarter of the domestic population by 2050, too.

I also like this almost penny stock as its non-cyclical operations means it can pay big dividends during good times and bad. Incidentally its yield sits a shade below 5% for this fiscal year (to March 2022). I think XPS is a top buy despite the problems that its acquisition-based growth strategy could throw up. Such problems could include the business ultimately overpaying to build its position in its fragmented marketplace.

However, this strategy can also be precarious. It’s certainly not suitable for all investors. That’s why I only have a modest allocation to penny stocks in my portfolio. 

And recently, I’ve been looking for more small-cap stocks to buy for my portfolio. Here are two shares I’d buy with a relatively small investment of £2,000. 

Penny stocks to buy 

Tribal (LSE: TRB) provides software and services to the international education market. The company reported a mixed year in 2020.

In the first six months of its financial year, overall revenues ticked lower by nearly 4%, in constant currency. But recurring revenues increased 3.3%.

This was a positive development. The company is in the process of transforming itself into a pure-play Software as a Service (SaaS) enterprise. As such, management is targeting recurring revenue growth. 

What’s more, the group is also focused on building its product offering. It recently acquired Semestry Limited, which adds cloud-based Scheduling and Timetabling capability to its Tribal Edge ecosystem software. This will provide opportunities to upsell products and expand into new markets. 

It looks to me as if Tribal is firing on all cylinders. However, the group is likely to face some challenges as we advance. It’s still a relatively small business. As such, like many penny stocks, it’s likely to face significant competition in the future.

Further, smaller companies can also struggle to raise capital to fund expansion. 

Despite these risks and challenges, I’d buy the stock for my portfolio today. 

Reverse takeover

I’d also buy Insig AI (LSE: INSG) for my portfolio of penny stocks today. This is a leading AI and machine-learning company servicing the asset management industry. It recently came to market following the reverse takeover of Catena Group. 

The firm offers a suite of tools designed to help asset managers streamline and modernise their processes. These include a portfolio management tool and a tool for “developing and executing a data-led ESG investing strategy.“

The company is still in its early stages, so it’s a risky proposition. It’ll publish more information on its strategy and growth over the next few quarters. 

Nevertheless, I think this company is worth adding to my portfolio of penny stocks for its potential. Demand for technology, particularly in the financial sector, is booming. And there are only a few corporations on the market that offer investors exposure to this theme. 

Still, as noted above, Insig hasn’t had time to prove itself just yet. There’s only limited information available on the business and its prospects.

Therefore, this investment might not be suitable for all due to the risks involved. It may turn out that buyers aren’t interested in the company’s products. 

Balance sheet rebuilt

He went to work, starting off with a rights issue and disposal of one of the firm’s business units to shore up the balance sheet in the spring of 2016. After assessing the “opportunities available to the Group,” he said that Tribal served a “strong” installed-software customer base, which included many leading universities and colleges and its services were used by high-profile institutions and government agencies “around the world.” He pledged to bring “greater focus”  to operations and looked to the future “with confidence.”

That confidence has been vindicated. Earnings turned the corner during 2016 and pushed higher in 2017. There’s still a long way to go before earnings per share once again hit the more-than 8p achieved in 2013, but forward guidance is positive. City analysts following the firm expect normalised earnings to move more than 60% higher this year and around 14% in 2019. The share price has responded well to the firm’s turnaround and is now around 425% higher than it was in the dark days of early 2016. But I think there could be more to come from this company, perhaps much more.

Well positioned for growth

Today’s half-year report is encouraging. Although revenue eased by 4.9% compared to the equivalent period last year, earnings per share shot up 76%. The company said in the report that 90% of full-year revenue expectation is either already recognised or committed for the second half, and annually recurring revenue runs at around 45% of the total. I reckon such visibility looks set to lead to stable incoming cash flow, which bodes well for the firm’s ongoing dividend prospects. The directors reinstated a dividend of 1p per share in May 2018 and plan a progressive dividend policy with a single payment each year after the full-year results.

During the period, Tribal won a “significant” number of contracts with British universities and colleges and abroad. Ian Bowles said in the report that the first phase of the turnaround, which began in 2016 is complete. However, he’s not sitting back with his feet up, vowing to “continue to focus on driving operational efficiencies with a view to continuing to lower our cost base.” He reckons Tribal’s “revitalised” sales and marketing efforts have been effective, helping the firm to gain market share in its core markets and to “displace over 20 competitive student management systems and replace four home-grown solutions in universities.”

Looking forward, the directors expect overall market conditions and demand for student information systems to remain stable in 2018.  Based on the firm’s high win rate they assert that the company is “well positioned” to benefit from the ongoing demand for new student information systems and upgrades. There’s no doubt that Tribal is a turnaround that is turning, and I think the stock is well worth your attention now. 

At the top of the class

Shares of educational software specialist Tribal Group (LSE: TRB) rose by 6% on Thursday after it said it expected full-year profits to be “materially ahead” of expectations.

The company’s explanation for this performance was surprisingly straightforward. It says strong trading momentum means that sales should be “slightly ahead of expectations”. But the firm’s 2016 reorganisation has resulted in “effective cost control” and “a balanced improvement across all lines of business”.

Use of the word “materially” usually means at least 10%. So using this as a guide, I expect consensus forecasts for earnings of 2.6p per share to be upgraded to perhaps 2.9p. That would put the stock on a forecast P/E of 30 for the current year.

Although this isn’t cheap, broker forecasts for next year already suggest that earnings could climb by another 30% or so to 3.4p per share. If this kind of growth is sustainable, then the shares could still have a lot further to go.

What could go wrong?

I think it’s worth noting that Tribal’s 2016 reorganisation was made necessary by heavy losses in 2014 and 2015. The company may still be in a turnaround phase. Earnings growth may well slow at some point.

However, today’s guidance implies that profit margins are rising and confirms that the group expects to end the year with an increased cash balance. If I was a shareholder, I’d feel confident holding this stock, and might consider topping up on any market wobbles.

22% increase in orders

When a company’s order intake rises by 22% in one year, it may be worth paying attention.

That’s what happened last year at Avon Rubber (LSE: AVON). This 127-year old business has two arms. It’s makes high-tech gas masks for the defence, industrial and fire service markets, and it produces milking systems for dairy farmers.

Despite the apparently niche nature of these activities, growth has been very strong in recent years. Sales have risen from £107m in 2012 to £163m last year, while the group’s profits have risen from £7.8m to £21.5m over the same period. That’s equivalent to average sales growth of 9% per year and profit growth of 22% per year.

Why I’d buy

When profits rise faster than sales, this usually indicates that profit margins are rising. That’s mostly been the case at Avon, which also benefits from having a debt-free balance sheet.

The group’s shares have risen by 70% over the last three years, but strong earnings growth means they don’t look overly expensive to me, with a forecast P/E of 17.6.

One reason for this fairly average rating might be that earnings growth is expected to be less than 5% per year over the next couple of years. Another downside is that the dividend yield is fairly modest, at just 1.3%.

However, I view this as a quality long-term investment, capable of delivering reliable growth over decades. Looked at in this way, I believe the shares offer decent value and could be worth buying at current levels.

Shares in Tribal Group (LSE: TRB), a “leading provider of software and services to the international education management market“, have had a rocky ride — down 44% since a peak in March 2014 and down 29% over 10 years.

But since January 2016 we’ve seen a five-bagger recovery to 81p and the start of what looks like a new growth phase.

After a couple of disastrous years, which saw a collapse in profits and took the company into severe financial danger, Tribal has just reported on a 2016 that saw it back on a “sound financial footing“. The sale of its Synergy business helped, as did a rights issue, and the new management’s turnaround strategy achieved an operational cash inflow during the year of £8.3m (against an outflow of £6.2m the year before).

And though we saw a statutory operating loss of £1.2m, that was way better than 2015’s loss of £45.5m — and Tribal reported an adjusted operating profit of £4.7m, and adjusted EPS of 1.9p.

Tribal has a large installed base for its Student Management Systems, and 2016 saw new contact wins — in the UK, and from other countries including New Zealand, Malaysia, Canada and Hungary.

There will be a hit on 2017 revenues from the ending of a contract that is being taken back in house by Ofsted, but chairman Richard Last told us that “the Group has a sales order backlog of £113.8m (2015: £121.3m), of which £58.1m is expected to be delivered and recognised is 2017“.

P/E valuations aren’t much good at this turnaround stage, but I see long-term potential here.

Commodities turnaround

Anglo Pacific Group (LSE: APF) is a very different company, but it’s another whose shares are turning around and making me take note. Since late January 2016, the price is up 2.3-fold to 119p, as the mining royalty firm is starting to bounce back after a few years of severe punishment by a depressed commodities market — back in December 2010, the shares were changing hands at around 360p before the crash.

Royalty income climbed by 127% in 2016, to £19.7m, while rising coal prices and the weakening pound helped turn 2015’s after-tax loss of £22.6m into a profit of £26.4m and lifted adjusted EPS from 2.47p to 9.76p.

The firm is also sitting on net assets per share of 124p, which is more than the current share price, and got its year-end net debt figure down to £1m. The dividend came in a little below last year’s 7p per share, at 6p, representing an attractive yield of 5%. 

Forecasts suggest a further doubling in earnings for 2017, which would drop the P/E to a bit under seven, and that’s with a decently-covered dividend yield of 6% on the cards. On fundamentals, that seems very cheap, but is Anglo Pacific really a buy now?

Well, commodities markets are still volatile, and Anglo’s royalty revenue is affected by gearing and could be hit by a further downturn. But with production ramping up at its Kestrel operation and moving “increasingly into our royalty lands” (in the words of chief executive Julian Treger), I do see an attractive proposition here.

And it’s not just a growth prospect I see. With chief financial office Kevin Flynn saying Anglo is “in a strong financial position to grow its asset base and continue to reward shareholders through a progressive dividend policy“, I see strong income potential, too.

Have investors missed the boat, or can these three stocks go on to post further spectacular gains?

This boat has sailed

Shares of AIM-listed Internetq (LSE: INTQ) crashed in December, following the publication of a highly critical report on the Greek mobile technology company. That the author of the report was Tom Winnifrith, who had previously done much to expose the dodgy accounting at Quindell (now Watchstone) and the fraud at Globo, led Internetq — which “does not normally comment on such matters” — to release an initial statement denying “the assertions made and the conclusions drawn” and a further statement responding to specific assertions.

Nevertheless, Internetq’s shares remained thoroughly depressed throughout December and much of January. The catalyst for the lion’s share of the 182% rise seen since the turn of the year was news in early February that founder and chief executive Panagiotis Dimitropoulos and private equity investors, who had pumped €17m into one of Internetq’s businesses, were looking at making a possible offer for the group.

A 180p a share offer came four weeks ago. Internetq is now set to move out of the public spotlight in a stock market delisting, so the boat has certainly sailed with this one.

A recipe for volatility

A recovery in the price of gold in recent months has catapulted the shares of several small gold miners into the ranks of the top risers for the year to date. Trans-Siberian Gold (LSE: TSG), which listed on AIM in 2003, has seen its shares rise by 133%.

As the shares soared, the company released a statement in February saying it was “not aware of any reason for the movement other than the recovery in the gold price and the general macroeconomic environment”.

This is the thing with gold miners: their fortunes are highly-geared to the price of gold. Put together the price of gold, a small company and operations in Russia and you’ve got a recipe for potentially extreme volatility. The shares of Trans-Siberian Gold could easily double again in the coming months; then again, they could just as easily halve. The world of small gold miners is a hugely speculative area of the market, more suitable for casino players than investors.

Longer-term focus

December was a terrible month for education software and services group Tribal Group (LSE: TRB), with its share price crashing to an all-time low under a welter of bad news: a second profit warning; a warning of a potential breach of debt covenants; a proposed rights issue to raise £35m; and a move down from London’s main market to AIM.

The 105% rise in the shares has come on the back of banks agreeing to waive covenants, and the £20m sale of one of Tribal’s businesses, enabling the proposed rights issue to be reduced from the originally-envisaged £35m to £21m.

With the injection of cash restoring the balance sheet to health, and a new management team, Tribal can now focus on the longer-term future. If the company can impress the market with a reduced cost base, improved operating efficiency and a compelling strategic plan from the new chief executive, the shares could make impressive progress over the next few years. A stock investors with a higher tolerance for risk might be interested in looking at.

Rather expensive

In fact, Rotork appears to be confident about its long term outlook, encouraged by the progress of its accelerated cost management programme and the actions it is taking to mitigate the effect of market weakness. It sees opportunities to increase its market share and as evidence of its confidence in future profitability, Rotork has increased dividends by 0.8%. This puts the company’s shares on a yield of 2.9% and with dividends being covered 1.8 times by profit, there is scope for faster rises in future.

Clearly, Rotork faces continued challenges from a low oil price and slower growth in China. And with its shares trading on a price to earnings (P/E) ratio of 19.7, they appear to be rather expensive. Therefore, it may be prudent for investors to wait for a keener price before considering a purchase.

Highly impressive

Also reporting today was workspace provider Regus (LSE: RGU). Its full-year results showed a rise in revenue at constant currency of 15.9%, while reported earnings per share rose by 66% versus the prior year. As a result, the dividend was increased by 13% and with Regus on-track to meet current year expectations, it appears to be in the midst of a period of highly impressive financial performance.

Looking ahead, Regus is due to increase its bottom line by 31% in 2016 and by a further 21% in 2017. This puts it on a price to earnings growth (PEG) ratio of just 0.8, which indicates that its shares could continue their 24% rise of the last year.

Certainly, Regus may still be a rather lowly yielder, at just 1.7%. But with its dividend covered 2.9 times by profit, there is tremendous scope for a rapid rise in shareholder payouts over the medium to long term. Add to this upbeat growth prospects and it appears to be a strong buy.

Core focus

Meanwhile, shares in education services provider Tribal Group (LSE: TRB) have soared by over 30% today after it announced the disposal of its Synergy children’s services management information system business to Servelec for £20.25m in cash. The net proceeds from the transaction will be used to reduce Tribal’s net debt and will strengthen its focus on core operations. They will also allow Tribal’s rights issue to be smaller than previously planned, with it now due to amount to £21m versus the previously announced £35m.

Looking ahead, Tribal appears to now have the capital with which to deliver on its planned turnaround. While this may not be a smooth process, the company is due to be profitable this year and it could therefore be of interest to less risk averse investors who can live with a relatively high degree of volatility.

Wide margin of safety

Looking ahead, this could hurt Santander’s profitability. Although the bank’s financial standing is strong following its fundraising a couple of years ago, its recent update showed that Brazil continues to be a drag on its overall performance. And while Santander is forecast to record a rise in earnings of 5% in 2016, there is a realistic chance of a downgrade to that figure.

While that would be disappointing, Santander has a very wide margin of safety and this means that its share price performance may prove to be strong even if its financial performance is somewhat lacking. For example, Santander trades on a price to earnings (P/E) ratio of just 7.3 and although the outlook for the bank is highly uncertain, it is difficult to justify such a low P/E ratio at the present time. As such, it appears to be an excellent buy for the long run.

Also posting dismal share price performance of late has been software products and services provider Tribal Group (LSE: TRB). Its shares are down by 81% in the last year following a highly disappointing period of financial performance which has culminated in a rights issue and the company’s shares moving onto AIM.

Considerable upside

However, in recent weeks investor sentiment has picked up strongly and Tribal’s shares have risen by 38% since the turn of the year. Part of the reason for this could be the waiving of the testing of financial covenants for the 2015 financial year, or the recent appointment of a new CEO. But with Tribal forecast to increase its bottom line by 37% this year and its shares trading on a forward P/E ratio of just 5.1, they appear to offer considerable upside, but also a relatively high degree of risk. As such, they could be of interest to less risk averse investors for the long haul.

Meanwhile, the recent update from Amur Minerals (LSE: AMC) was positive and shows that the company is moving in the right direction. For example, it is taking delivery of various pieces of equipment so as to be able to double its drilling capacity at the potentially highly lucrative Kun Manie prospect. This should allow for the rapid expansion of the resource and generate the required information for the definitive feasibility study.

Better options elsewhere

While 2016 is set to be an exciting year for Amur after relatively slow progress in the last decade, there still appear to be better options available elsewhere in the resources space. That’s not because Amur lacks a quality asset or the potential to generate a significant amount of profitability, but rather it is because other sector peers offer high levels of profitability right now, as well as low valuations.

So, while less risk averse investors may wish to take a closer look at Amur, for most investors it may be prudent to look elsewhere.

As a result of this, Tribal expects adjusted operating profit for the current financial year to be significantly lower than anticipated. Furthermore, the company has identified that a number of significant cash receipts may not be received until the next financial year. As such, net debt could be higher at the end of the current year tha previously anticipated. This means that Tribal may break its debt covenants and so is in talks with its lenders to negotiate amendments to its terms. Additionally, Tribal has announced a rights issue of up to £35m, with more details to come when it releases its full-year results.

Undoubtedly, Tribal is enduring a prolonged period of disappointment and while its shares have fallen by 80% already this year, further falls could come. That’s at least partly because the company’s payments are linked to customer programme milestones in some cases. And with the milestones not being within Tribal’s control, there’s the potential for further delays to payments. It seems Tribal is a stock to watch rather than buy at the present time.

Home sweet home

Meanwhile, the house building sector continues to have excellent growth potential for 2016. That’s at least partly because of a reduced chance of an interest rate rise now that inflation is near-zero, thereby potentially maintaining high demand for property. Partly as a result of this, Barratt (LSE: BDEV) is expected to increase its bottom line by 18% in the current financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which indicates that share price growth could lie ahead in 2016.

Furthermore, with Barratt yielding 5% at the present time from a dividend that’s covered 1.8 times by profit, it remains a hugely enticing income play too. With income-seeking investors still likely to be reliant on shares for their income next year due to low interest rates, Barratt is likely to remain firmly in favour.

Good times ahead?

Similarly, buying Vodafone (LSE: VOD) right now appears to be a very sound move. Many investors will be rather lukewarm about that prospect due to Vodafone’s disappointing performance in recent years. But that has mostly been due to challenges in the markets in which it operates rather than internal factors. In fact, Vodafone has steadily been investing in its offering and in diversifying its business so as to provide a more visible revenue stream in future years.

This should allow it to become a more resilient and reliable income stock over the medium term. And with its shares yielding 5.5% and earnings growth forecast at 19% for next year, there appear to be adequate catalysts to push the company’s share price higher in 2016.

That’s because, while the index has huge potential to rise in the coming years, the capital gains on offer in the short run may be held back by uncertainty regarding China as well as planned interest rate rises. Therefore, dividends offer not only a return but also a cash flow to invest in undervalued businesses.

One of the highest yielding stocks in the FTSE 100 is GlaxoSmithKline (LSE: GSK). It presently yields over 6% and its shareholder payouts appear to be very sustainable at their current level owing to the company’s impressive drugs pipeline as well as the changes being made to the business. Notably, GlaxoSmithKline is attempting to make substantial cost savings and become a more efficient business which, after a number of challenging years, has the potential to improve investor sentiment in the stock.

Of course, with a smaller exposure to the consumer goods market after its sale of the Ribena and Lucozade brands, GlaxoSmithKline is now more dependent upon the patent cycle than it once was. And, while in recent years it has struggled to hold back a fall in sales (revenue has fallen by 15% in the last five years), in the next two years its sales are forecast to rise by almost 8%. This could improve investor sentiment and indicate that GlaxoSmithKline may be on the cusp of improved share price performance after gaining just 5% in the last five years.

Meanwhile, Barratt Developments (LSE: BDEV) has experienced a very different recent period than GlaxoSmithKline, with its sales almost doubling in the last five years. This is mainly due to improved trading conditions for house builders and, with planning laws continuing to be very tight and interest rates set to remain low over the coming years, a fundamental supply/demand imbalance is due to remain a feature of the housing market moving forward.

Interestingly, Barratt still trades on a price to book value (P/B) ratio of just 1.7. That’s despite its share price rising by 625% in the last five years and indicates that there is considerable upside potential available. Furthermore, with Barratt yielding 4.8% and yet paying out just 57% of profit as a dividend, it has quickly become an income favourite and looks set to remain so in the medium to long term.

Investors in Tribal Group (LSE: TRB), however, have experienced major disappointment today with the company’s shares falling by 35% following a profit warning. The provider of student management systems and services for education management has focused its efforts on attracting larger customers and, as such, has failed to generate sufficient medium and small-sized opportunities to complement the larger deals. And, with a challenging trading environment, it now expects revenue and profit to be below previous guidance.

Clearly, this is a major blow for the company and, with it having no CEO at the present time, it is a period of considerable uncertainty for its investors. As such, it could be worth waiting for further news and evidence that it is turning its performance around before buying a slice of the business.