Bull market or bear market, regardless of what cycle we’re in, people are always on the lookout for ‘cheap’ penny stocks to buy.
After all, who doesn’t love to buy a stock as cheap as under ₹50 and sell when it doubles or triples wealth.
Penny stocks which have a decent balance sheet, low or zero debt and a track record for paying dividend can fare much better against their peers.
Such companies deserve to be a part of your watchlist.
Let’s take a look at the top six penny stocks which fulfill all the criteria mentioned above.
#1 NBCC (India) Ltd.
NBCC (India) operates into three major segments – project management consultancy, real estate, and engineering procurement & construction.
It’s a PSU with government of India holding 61.75% stake as of June 2021.
NBCC, which has a wide footprint in civil construction, residential & commercial projects including redevelopment of government colonies, had reported a 237% YoY increase in net profit in the June 2021 quarter.
The company has had nil or almost zero debt over the past 13 years.
Debt free companies always make for a good investment and NBCC India with zero debt gives more comfort to shareholders as it also has solid sales and profit track record.
The company’s sales grew at a CAGR of 12% between fiscal 2014 and fiscal 2020. The company’s profits have stayed at almost the same level.
NBCC India has a solid track record for consistently paying dividends since 2007.
Latest developments suggest that the company will likely feature on the initial list of firms for privatisation, as the government embarks on the path of privatising or closing down all CPSEs in the ‘non-strategic sectors’ in a phased manner.
Over the past one year, shares of the company have gained 103%.
Another on this list is also a PSU – GMDC.
Gujarat Mineral Development Corporation (GMDC) Ltd is a mining and mineral processing company. The company is the largest merchant seller of lignite in India. It offers lignite for various industrial units including textiles, chemicals, ceramics bricks, and captive power.
GMDC’s profits have declined over the years but it has maintained consistency. It has never reported losses for any financial year starting back from 2001, barring the latest fiscal.
Have a look at the table below to see the company’s financial performance for the past 5 years.
Coming to dividends, GMDC has paid hefty dividends since 1997, dividend yield for which has always stayed at or above 1%.
Over the past 12 months, shares of the company have gained 77%.
The company currently trades at an attractive price to book value of 0.6.
To know more, check out GMDC’s dividend payout history.
#3 Indraprastha Medical
Indraprastha Medical has had debt for every year since 2002. It was until this year that the company was able to bring down its debt to zero.
The company has never reported a loss starting fiscal 2002. Although its latest fiscal bottomline was drastically affected.
Indraprastha Medical’s dividend payout history is so attractive that the dividend yield has stayed above 3% since 2001.
The company has paid out hefty dividends till fiscal 2019. It has not paid out dividend for the latest two fiscal.
Over the past one year, shares of the company have gained 59%.
Another PSU on the list – National Aluminum Company (NALCO).
Nalco’s dividend history goes back to 1995. The government owned company has maintained its dividend payout consistency by declaring dividends throughout all these years.
The company has almost nil debt. Its debt to equity ratios has stayed nil or 0.01% throughout the years.
Coming to sales and profits, have a look at the table below to see Nalco’s financials over the years.
Last month, shares of the company surged to 10-year highs due to a military coup and political unrest in Guinea, a major supplier of bauxite.
The political instability in the African nation has fueled supply concerns for the raw material used in production of the metal, which could hike aluminium prices, which will in turn benefit NALCO.
This month, the company announced a final dividend of ₹1 per share, in addition to the 1st and 2nd interim dividend of ₹2.50 per share.
#5 Geojit Financial Services
Geojit Financial share price has had a great run with the stock price of Kochi-headquartered broking-cum-financial services company increasing 107% in the last 12 months.
Geojit Financial is engaged in the business of financial services activities.
From sales of ₹389 m back in 2004, the company reports on an average over ₹2,500 m in sales for the past eleven years.
For fiscal 2021, it reported sales of ₹4,250 m.
Its profit record is much better. Since 2004, Geojit Financial has only reported loss in one fiscal (2014). Its latest fiscal net profit stood at ₹1,232 m.
Its dividend payout history goes back to 1998.
For fiscal 2021, the company has reported a dividend of ₹350%, which amount to ₹3.50 per share, giving a dividend yield of 7%.
#6 Jullundur Motor Agency
Jullundur Motor Agency is engaged predominantly in trading and distribution of automobile parts, accessories and petroleum products primarily in India.
The company has decent sales and profit growth track record.
Over the past one year, shares of the company have rallied 135%.
Now, there are several positive factors which has supported this stock.
First one being that the company is debt free. Jullundur Motor Agency has maintained its ‘no debt company’ status over the years.
Second positive is that it has good dividend payout track record. At the current price, the company is offering a dividend yield of 3.3%, which is more than decent.
The third factor being that the stock is trading at 0.86 times its book value, which makes it attractive.
The price to book value ratio compares the market and book value of the company. The higher the price to book value, the more expensive the stock.
An interesting data here is that FPIs, DIIs, and promoters, all of them are raising their shareholding in this company.
How should one go about investing in penny stocks?
One should always do their own research before investing in penny stocks as they are inherently riskier than blue-chip or mid cap stocks.
On the brighter side, they present a huge growth potential. It’s not unusual for a good penny stock to turn a multibagger in a matter of months. But on the flipside, there is a high risk attached.
Not all penny stocks tend to be outperformers. That is the reason penny stocks are not recommended to those having a low risk profile.
The corpus that one sets aside for penny stocks should not be more than 5%-7% of the total money allocated towards equities.
You need a very strong framework to separate men from the boys in penny stocks. A framework that not only enables you to zero in on the right penny stock at the right price but also helps you avoid those big losers.
Happy Penny Stock Investing!
This article is syndicated from Equitymaster.com
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