How to invest in penny stocks if recession strikes. 5 options under lens

Highlights

• Penny stocks trade at low valuations as compared to blue-chip or mid-cap stocks.
• Market sell-offs in recession create opportunities to build a portfolio by investing in stocks that are trading at a cheaper value but have strong fundamentals.

Stocks trading on the London Stock Exchange with a share price below £1, with a market capitalisation of less than £100 million are often defined as penny stocks, and they tend to attract investors who are willing to generate high returns with an even higher risk factor.

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These stocks trade at low valuations as compared to blue-chip or mid-cap stocks and they tempt highly speculative traders with the illusion of easy exponential growth. Companies in this category often have weak balance sheets and are typically volatile in nature. However, investors usually invest in penny stocks for a brief period. During a recession or economic slowdown, these investments become riskier due to high volatility.

Market sell-offs in a recession create opportunities for the investors to build a portfolio by investing in stocks that are trading at a cheaper value but have strong fundamentals. Investors should always do some research before investing in such stocks and should diversify their portfolios to offset losses during economic slowdown or recession.

Companies in high-growth sectors and emerging markets, such as fintech, cybersecurity, and biotech may offer greater return potential as relative economic growth in these sectors is occurring at a faster rate.

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Let’s look at 5 penny stocks that you may consider for now and decide their future looking at the market conditions.

1. Blue Star Capital Plc (LON: BLU)

With a market cap of £15.48 million, the share value of the FTSE AIM All-Share listed investment company engaged in investing in assets or companies in various sectors, such as technology, gaming, and media has appreciated by 71.28% over the last one year as of 6 May 2022, while its year-to-date return stands at -21.37%. Blue Star Capital Plc’s shares were trading at GBX 0.33, up by 4.84% at 11:20 PM (GMT), as of 6 May 2022.

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 Kodal Minerals Plc (LON: KOD)

With a market cap of £47.50 million, the share value of the FTSE AIM All-Share listed mining development and exploration company active in West Africa has appreciated by 45.10% over the last one year as of 6 May 2022, while its year-to-date return stands at -7.77%. Kodal Minerals Plc’s shares were trading at GBX 0.29, up by -5.00% at 11:20 PM (GMT), as of 6 May 2022. 

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 Tavistock Investments Plc (LON: TAVI)

With a market cap of £32.07 million, the share value of the FTSE AIM All-Share listed investment advice company engaged in providing institutional quality investment services to private investors of any wealth, has appreciated by 146.19% over the last one year as of 6 May 2022, while its year-to-date return stands at 40.85%. Tavistock Investments Plc’s shares were trading at GBX 5.75, at 11:20 PM (GMT), as of 6 May 2022.

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 Wishbone Gold Plc (LON: WSBN)

With a market cap of £13.47 million, the share value of the FTSE AIM All-Share listed precious metal exploration and trading company has depreciated by -33.04% over the last one year as of 6 May 2022, while its year-to-date return stands at -11.29%. Wishbone Gold Plc’s shares were trading at GBX 7.75, at 11:20 PM (GMT), as of 6 May 2022.

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 Baron Oil Plc (LON: BOIL)

With a market cap of £13.32 million, the share value of the FTSE AIM All-Share listed independent oil and gas exploration company has appreciated by 5.56% over the last one year as of 6 May 2022, while its year-to-date return stands at 43.29%. Baron Oil Plc’s shares were trading at GBX 0.10, down by 17.39, at 11:20 PM (GMT), as of 6 May 2022.

Note: The above content constitutes a very preliminary observation or view based on market trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.