There are numerous penny stocks – small-cap companies with a share price under R1 – on the JSE’s main board and they may seem attractive to retail investors, especially first-timers who want to enter the world of investment.
A few former mid-cap names – in particular construction companies such as Aveng, Basil Read and Group Five – have fallen to the penny-stock category as South Africa’s economy tanks under poor government policy decisions, and a dearth of fixed capital investment by companies.
Nevertheless, there are several penny stocks that shimmer and may prompt a closer look, but investors shouldn’t necessarily be adding them to their portfolios. finweek has identified four stocks that are geared towards a changed future economy, or pose value in terms of their share price.
The returns story on the FTSE/JSE Small Cap Index is a mixed one at best. The index – which includes those stocks not selected for the FTSE/JSE Top 40 Index or the FTSE/JSE Mid Cap Index – declined 4.1% last year, slumped 14.6% in 2018, rose 3% in 2017 and jumped 20.9% in 2016 (see the table below for comparison).
Considerations with penny stocks
The decision to invest in penny stocks should be premised on a solid analysis of a company.
“With penny stocks, much of the value lies in their prospective growth in income and as a result, historical valuations are of lesser significance,” says Ricus Reeders, portfolio manager at PSG Securities. He recommends two factors to look at when considering penny stocks due to margins in these companies typically being slim.
This story is from the 6 February 2020 edition of Finweek English.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the 6 February 2020 edition of Finweek English.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
THE HEALTH OF SA'S MEDICAL SCHEMES
As the Covid-19 pandemic abates, finweek takes a look at the financial performance of some of the largest players.
The effect of Gilbertson's departure
With Ntsimbintle Holdings now the major shareholder of Jupiter Mines, it could change SA’s manganese industry.
Making money from music
Why investors are increasingly drawn to the music industry.
Conviction is key
Sandy Rheeder plays a critical role in Mukuru’s mission to open up financial services to the emerging consumer market in Africa through tailor-made technology solutions and platforms.
The post-pandemic toolkit
How CFOs can use technology to support growth.
Big city living exodus
Mini cities like Waterfall City and Steyn City are redefining city-style apartment living.
Big compact, big value
Handsome, with a hefty level of standard specification, the roomy Haval Jolion compact crossover is a great value proposition.
On barriers to entry
There are various ways in which a company or sector can achieve competitive dominance. They usually make for good investments.
Fear and greed in one index
To buck the trend, when markets are hot or cold, is a tough thing to do. However, it can deliver solid returns.
Africa's largest data centre facility coming soon
Vantage Data Centers plans to invest over R15bn for its first African data centre facility in Attacq’s Waterfall City.