2 penny stocks I would buy now for the next bull market

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The recent stock market declines feel uncomfortable right now. But they can provide good buying opportunities for smart long-term investors. Today I’m looking at two penny stocks that I think should do well when sunnier times return.

Foxtons is poised for recovery

Real estate agent Foxton’s (LSE: FOXT) is a key player in the London housing market. However, this company has been going through a bad patch over the past few years and has not performed as well as I expected.

Its share price has fallen by more than 80% since its IPO in 2013. However, last year’s results showed a welcome increase in profits and I believe the group is well positioned for a strong turnaround.

An important change is that the company has increased its exposure to the rental market, which now generates 65% of revenue. The importance of this is that rentals are generally recurring and non-cyclical.

While the upfront fees available from home sales can be higher, this sector of the market is highly cyclical. As we’ve seen over the past year, the housing market can slow down dramatically from time to time.

Foxtons also has a new chief executive. Guy Gittins has returned to the business where he started his career 20 years ago. A highly experienced real estate agent in London, he is determined to rebuild the brand and invest in growth.

I think it could be a sensible buy at current levels in the medium term.

A market-leading company

My next choice is boiler control machine Strix (LSE: KETL). This little-known company is the world’s largest manufacturer of boiler safety controls – the part that turns your boiler off when it’s boiling.

It has a market share of around 50% for these parts. This reflects its trusted relationship with many manufacturers. The only problem with this is that it doesn’t offer many opportunities for growth.

To try to solve this problem, Strix has acquired small companies in related fields, such as hot water faucets and water filtration. The company has also built a new factory in China

Unfortunately, these moves have left the company with quite a bit of debt. The group’s financial situation was also worsened by supply chain issues and Covid disruptions in China last year.

A dividend cut is also expected in this month’s results, although broker forecasts suggest the stock could still yield 6%.

I’m not sure if Strix’s latest acquisitions will ever be as profitable as its core business. One risk, in my view, is that some of these expenses will eventually be written off.

However, I am encouraged by a recent change in tone from the company’s management. In an update in January, Strix said it planned no further acquisitions or factory buildings.

Instead, the company wants to return to its “core operating model” to be very money making.

If CEO Mark Bartlett can deliver on this promise to shareholders, I think shares could be cheap at current levels. If I were looking for a small-cap value stock to buy today, I would definitely consider Strix.

The post The 2 penny stocks I’d buy now for the next bull market appeared first on The Motley Fool UK.

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Roland Head has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The views of the companies mentioned in this article are the author’s and therefore may differ from the official recommendations we provide in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a wide range of insights makes us better investors.

Motley Fool UK 2023

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