Penny stocks are the epitome of risky investments. Yet, for the few brave investors capable of identifying promising young businesses, they offer potentially explosive returns in the long run. And achieving this level of growth could be critical today, given the economic environment.
The increasingly worrying state of inflation is causing many investors to move their capital out of the stock market and into low-risk instruments like savings accounts. After all, they’re a safe haven from volatility and many can be accessed instantly should a bill need paying.
Yet even with the interest rate hikes, the gains offered by even the best saving vehicles pale in comparison to 10.7% inflation. In other words, this decision is actually destroying investor wealth in terms of spending power.
With that said, for investors with a spare £1,000, what are the best shares to buy today to stay ahead of inflation?
Food stocks for thought
Even if the UK enters the recession economists fear, demand for food isn’t going anywhere. After all, it’s a staple item that humans can’t live without – literally.
This is how two promising enterprises recently came across my radar: Anpario (LSE:ANP) and Benchmark Holdings (LSE:BMK). These small firms specialise in helping livestock farmers take better care of their herds, reducing medical expenses, as well as improving protein quality and yield.
Anpario is a global producer of medical feed additives for poultry, ruminant, swine, and fish livestock. The group uses all-natural ingredients across its product portfolio and this commitment has proved advantageous as the regulatory landscape shifts. For example, in 2020, China banned all antibiotic growth promoters. This move disrupted many of Anpario’s competitors while creating a new market opportunity for the business.
Benchmark Holdings is a bit more unique. The company uses genomics to breed disease-resistant fish. Not only does this improve the end product for consumers, but it also reduces the impact of overfishing on natural ocean habitats.
Both stocks are achieving impressive double-digit growth. And while Benchmark has yet to cross the threshold into profitability, underlying EBITDA margins are trending upwards, with analyst earnings forecasts expecting a positive net income by 2024.
High growth comes with risk
With food supply becoming an ever more present concern courtesy of global warming, both of these penny stocks have long-term potential. At least, that’s what I think. Yet, like all small businesses, there remains a long trail ahead.
With interest rates on the rise, access to vital external capital is getting more expensive. Both companies are flooded with cash and other liquid instruments to meet their short-term liabilities. However, funding new growth endeavours will undoubtedly prove more challenging as the current economic storm continues.
This uncertainty is arguably why both stocks have dropped by more than 25% in the last 12 months. And this volatility isn’t likely to disappear any time soon.
Nevertheless, these businesses appear to be on track to hit their milestones, even with all the latest round of disruptions. The risk level is undoubtedly high. But in the long term, investors could be immensely rewarded for their patience.