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The recent stock market falls are uncomfortable right now. But they can offer excellent buying opportunities for smart long-term investors. Today I’m looking at two penny stocks that I think should perform well when the sunnier weather returns.
Foxtons is ready for recovery
Real estate agency Foxtons (LSE: FOXT) is a key player in the London property market. However, this company has been going through a rough patch over the past few years and hasn’t performed as well as expected.
Its stock price has fallen more than 80% since its IPO in 2013. But results from last year showed a welcome uptick in earnings and I believe the group is well positioned for a strong turnaround.
A significant change is that the company has increased its exposure to the rental market, which now generates 65% of its revenue. The importance of this is that rentals are generally recurring and not cyclical.
Although the upfront fees available on home sales may be higher, this sector of the market is highly cyclical. As we have seen over the past year, the housing market can slow down significantly from time to time.
Foxtons also has a new chief executive. Guy Gittins has returned to the profession where he began his career 20 years ago. A highly experienced estate agent in London, he is determined to rebuild the brand and invest in growth.
I think it could be a reasonable buy at current levels, in the medium term.
A market leading company
My next pick is the Kettle Control Maker Strix (LSE: KETL). This little-known company is the world’s largest producer of kettle safety controls – the part that turns your kettle off when it boils.
It has a market share of around 50% for these parts. This reflects its trusted relationships with many manufacturers. The only problem with this is that it doesn’t leave much room for growth.
In an attempt to solve this problem, Strix bought out small companies in related areas, such as hot water faucets and water filtering. The company also built a new factory in China
Unfortunately, these moves left the company with a lot of debt. The group’s financial situation has also been worsened by supply chain issues and the Covid disruption 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 don’t know if Strix’s recent acquisitions will ever be as profitable as its core business. A risk, in my opinion, is that some of this spending will end up being cancelled.
However, I am encouraged by a recent change in tone from company management. In a January update, Strix said it had no plans for further acquisitions or factory builds.
Instead, the company wants to return to its “basic operating model” to be very cash-generating.
If chief executive Mark Bartlett can deliver on that promise to shareholders, I think shares could be cheap at current levels. If I was looking for a small cap value stock to buy today, I would definitely consider Strix.
