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5 Penny Stocks to Watch out for in 2022

Jul 15, 2022

5 Penny Stocks to Watch out for in 2022

Editor's note: Penny stocks is a dangerous name to utter in this current market environment. Chances are, if you did not do the due diligence right, before investing in a penny stock, you would be sitting in deep losses ranging 40%-50%.

Fundamentally strong stocks like TCS, Wipro, among other have been beaten down around 35%-40% so you can imagine the wrath penny stocks must be facing.

Lately, because of low liquidity and the added volatility, investors are not fancying penny stocks.

Being the most volatile category of the lot, they are not the ideal pick for investors these days.

Now, you must be thinking...

Since everyone has become so fearful about penny stocks, isn't it time to be greedy?

Shouldn't you grab them while they are available cheap?

There is no doubt the idea has merit. But you need to be careful in separating the men from the boys to latch on to the best penny stocks in India.

Back in November 2021, we wrote about the 5 penny stocks to watch out for in 2022.

Here's how they have performed on a YTD basis and since the time we wrote to you.

Penny Stocks to Watch Out

Company CMP (Rs) YTD (%) Since November 2021 (%)
Ircon International Ltd. 37.1 -18% -21%
Manaksia Ltd. 78.5 1% 21%
Orient Paper & Industries Ltd. 24.05 -24% -23%
SJVN Ltd. 28.55 -7% 0%
Haldyn Glass Ltd. 38 -10% -5%
Source: Equitymaster

This list is still extremely relevant today as most of these stocks have taken a hit in 2022.

Continue reading to know more about these five penny stocks...

5 Penny Stocks to Watch out for in 2022

Diversification is an excellent strategy to protect your portfolio.

Simply chasing the safest bluechips is only going to offer one thing: low returns.

Enter penny stocks.

Penny stocks come in with higher risks but potentially higher rewards.

You must be willing to take the risk of investing in penny stocks if you want to make big profits in the market.

A clear line must be drawn when picking penny stocks because not every penny stock will turn out to be the next Bharti Airtel or Eicher Motors.

That is why, penny stocks which have a decent balance sheet, low or zero debt and a track record for paying dividend fare much better against their peers.

Such companies deserve to be a part of your watchlist.

Let's take a look at the top five penny stocks that you should watch out for in 2022.

#1 IRCON International

IRCON International Ltd is a mini ratna category - I public sector undertaking (PSU) since 1998.

The company has diversified into roads, buildings, electrical substation and distribution, airport construction, commercial complexes, and metro segments. It earns revenue mostly from the railway segment.

IRCON International is one of the few agencies through which the ministry of railways has implemented railway projects throughout the country for four decades. It has completed more than 300 infrastructure projects in India.

In the past three years, the company has brought down its debt to almost nil level. It had a total debt of around Rs 32 bn as of March 2018. Currently, IRCON has a debt of just Rs 3.3 bn. It has brought down its debt to equity ratio from 0.85x to a mere 0.08x at present.

Recently, the principal economic advisor recommended the merger of IRCON International with Rail Vikas Nigam, citing the creation of synergies and the removal of duplication that would result from the exercise.

Both these companies are engaged in the construction of railway infrastructure. Experts are of the view that the restructuring will create monopolies and improve capital allocation. They are of the view that IRCON and RVNL can possess a solid portfolio if merged.

IRCON has a solid track record of paying dividends, having paid dividends since the year 1998.

Over the last one year, shares of the company have gained 24%.

chart

The government of India holds 73.18% stake in the company as of September 2021.

To know more, check out IRCON International's 2020-21 annual report analysis.

#2 Manaksia

Manaksia (formerly Hindusthan Seals) is a multi-division and multi-location conglomerate. It possesses 15 manufacturing plants in India and three abroad: two in Nigeria and one in Ghana.

Manaksia specialises in the manufacture of packaging products (crowns, closures, and metal containers), metal products, and fast-moving consumer goods, among others.

The company has maintained low debt levels and kept its debt-to-equity ratio below 0.1x for the past four years.

Although the company's profits have declined in the past five years, it has maintained consistency in sales.

Manaksia has a consistent track record of paying dividends. It paid its highest ever dividend of Rs 10.50 last year which resulted in a dividend yield of 38.7% at that price.

Manaksia Dividend History

Year End Dividend per Share (Rs)
31-Mar-21 3
31-Mar-20 10.5
31-Mar-19 3
31-Mar-18 3
31-Mar-16 2
31-Mar-15 2
31-Mar-14 2
Data Source: Ace Equity

Promoters of the company hold 74.93% stake in the company with no shares being pledged.

Over the last one year, shares of the company have gained 63%.

chart

#3 Orient Paper & Industries

Orient Paper & Industries, incorporated in 1936, belongs to the CK Birla group.

It's currently engaged in manufacturing of paper with a paper unit at Madhya Pradesh, having a capacity of 110,000 tonnes p.a. and caustic soda and derivatives.

The company's paper products are sold under the brand names 'Diamond Touch, 'Orient', and 'First Choice'.

From a debt-to-equity of around 1.1x back in March 2016, the company current trades at a debt-to-equity ratio of 0.06x.

Orient Paper & Industries has been a consistent dividend payer since March 2007.

This year, it declared a dividend of Rs 0.25 per equity share.

Despite the company operating in one of the worst affected industries due to Covid-19 pandemic, shares of the company have stood firm and gained as much as 100%.

Fiscal 2021 was a tough one for the company where its revenues nearly halved and the company was back to posting losses after six years.

chart

Education institutions were closed and there was muted demand for printing of newspapers.

But with the ongoing vaccination program in India taking pace and with people now adapting to Covid-19 norms, it's expected that the sales of paper & paper products industry will witness an uptick during financial 2022.

The ban on single use plastic from next year by the central government and a sharp decline in raw material prices have added to the euphoria in paper stocks.

#4 SJVN

Sutlej Jal Vidyut Nigam, or SJVN, is an Indian government-owned company that generates and transmits hydroelectric power.

The company is investing heavily in hydro projects and is expecting to complete its 60 MW Naitwar Mori hydel project by June next year.

The company is working in exciting sectors of renewable energy including hydro, wind, solar, and thermal. SJVN has more than 11,000 MW power projects in the pipeline.

This company is a very good contender if you want passive income in your portfolio. Since September 2010, SJVN has issued 19 dividends.

SJVN has paid out a hefty dividend of Rs 2.20 this year, which results in a dividend yield of around 8%.

Dividend apart, it has never reported a loss since fiscal 2013 and maintained consistency in reporting sales and profits.

Financial Snapshot

(Rs m) FY15 FY16 FY17 FY18 FY19 FY20 FY21
Net Sales 28,174 24,940 26,791 22,285 26,447 27,028 24,854
Sales Growth (%) 50.40% -11.50% 7.40% -16.80% 18.70% 2.20% -8.00%
Operating Profit 28,850 25,996 26,061 21,104 24,887 27,003 29,657
Operating Profit Margin (%) 102% 104% 97% 95% 94% 100% 119%
Net Profit 16,767 14,108 15,453 12,246 13,665 15,668 16,456
Net Profit Margin (%) 59.50% 56.60% 57.70% 55.00% 51.70% 58.00% 66.20%
Data Source: Ace Equity

Its debt levels have stayed under control with debt-to-equity remaining below 0.3x in the past eight years.

Over the year gone by, shares of the company have gained 30%.

chart

At the current price of Rs 29, the company commands a marketcap of Rs 112.6 bn.

#5 Haldyn Glass

Incorporated in 1991, Haldyn Glass (formerly known as Haldyn Glass Gujarat) is involved in manufacturing and marketing of glass bottles and containers.

The company's manufacturing plant is located at Vadodara, Gujarat.

In fiscal 2016, in order to diversify its product portfolio, Haldyn Glass entered into a 50:50 JV with Heinz Glass International GmbH of Germany, named as Haldyn Heinz Fine Glass.

The company makes small vials for pharma companies and also caters to industries such as food and beverages, liquor, and beer industries.

As the company supplies vials for Covid-19 vaccines, it's set to benefit from the ongoing worldwide vaccination drive.

Rating agency CRISIL had said that a strong surge in vaccination-led demand for glass vials coupled with growth in auto volumes will drive revenue growth of glass makers in fiscal 2022.

Government policy decisions will also support. India has levied anti-dumping duty on some varieties of float glass imports from Malaysia for five years in November 2020. Countervailing duties were levied on imports of tempered glass from Malaysia in March 2021.

Haldyn Glass is almost a zero-debt company and has reported profits for the past three years.

It has a good track record of paying dividends since the year 2005. It recently declared a dividend of Rs 0.60 per share.

Over the past one year, shares of the company have gained 46%.

chart

As of September 2021, company promoters held 56.99% stake in the company with no shares being pledged.

To know more, check out Haldyn Glass' latest shareholding pattern.

Other penny stocks to watch out for in 2022

Apart from the above, do watch out these penny stocks which have a good dividend paying track record, decent financials and debt levels under control.

Company Dividend Per Share (Rs) Debt to Equity (X) Net Profit (Rs m)
Oricon Enterprises 0.5 0.3 -19.6
Time Technoplast 0.7 0.43 1,034.30
Sakuma Exports 0.05 0.02 71
D B Corp 3 0.03 1,414.20
Data Source: Ace Equity
Data as on 31 March 2021

The ideal strategy to follow while investing in penny stocks...

2022 has been a year for volatility for both penny stocks and blue chips.

Even with the volatility, penny stocks have never gone entirely out of fashion.

They keep on drawing attention from retail investors.

Why?

Because it's not unusual for a good penny stock to turn a multibagger in a matter of months.

On the flipside, there is a high risk involved. In a bull market, several junk companies with dubious promoters and poor corporate governance standards also rally.

Investors who are new to the market often get lured into investing in them in the hope of making quick gains.

That is the reason penny stocks are not recommended to those with 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.

If you follow sensible investing principles, no time is a bad time to invest in best penny stocks.

Watch the below video where co-head of Research at Equitymaster and penny stocks guru Rahul Shah discusses his top penny stocks in this market.

Since you are interested in penny stocks, check out our ultimate guide to penny stock investing.

Happy Penny Stock Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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