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Best stocks to buy now: is this dirt-cheap FTSE stock a top pick for my ISA?

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Jabran Khan
·3-min read
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FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

I have looked through my FTSE best stocks to buy now list and think HSS Hire (LSE:HSS) could be a penny stock opportunity for my Stocks & Shares ISA as the 5 April deadline looms.

Penny stocks are companies whose shares cost less than £1 per share. This cheapness can result in volatility and higher risk that’s not to every investor’s taste.

In my opinion, I believe there are some excellent businesses out there and HSS Hire is potentially one of them.

FTSE penny stock opportunity

HSS Hire is a leading provider of tools and equipment to the construction industry and its business is split into two main divisions.

It’s largest division is tool and equipment rental. This makes up nearly 70% of total revenue. The HSS model involves buying, maintaining, and leasing equipment to its customers. At the end of 2019, it was reported that the UK equipment rental market was worth over £4.5bn.

HSS’s smaller division is customer services. This arm of the company is split into two roles. One is to find and recommend tools depending on the type of job a customer is completing. Secondly, it offers training courses around how to use specific equipment.

I really like HSS’s business model and believe it has a unique offering and ability to expand further too. This is why it is on my best stocks to buy now list. It is also a very cheap FTSE stock. Between February and December last year, its price fell a staggering 65% to just 10.50p per share. It has begun to recover and, as I write, shares can be purchased for close to 17p per share.

Cheap but risky

Construction slowed down due to Covid-19. This impacted HSS’s business. Revenue and underlying profit fell 22% and 38% respectively for the first half of 2020. I understand the impact of Covid-19 and the role it played in HSS’s results. I believe the vaccine rollout and the fact construction firms will experience a boom to make up for lost time will benefit HSS. City analysts also seem to think the same. They have forecast performance to bounce back in the second half of the year. Of course, forecasts can change based on future developments.

I mentioned the risk of penny stocks earlier. HSS has its own risks. There are low barriers to entry to the equipment rental industry, which means it is a competitive and fragmented market. HSS has the advantage of being one of the best known names in the industry, but if someone offered me the exact same tool at a cheaper price, I’d be tempted.

Best stocks to buy now for my ISA

There are risks with any stock but I believe HSS presents a unique opportunity. I’d be willing to risk a small part of my Stocks and Share ISA allowance on it. It is a well-known established brand name with an established customer base. It operates in an industry which will experience pent up demand as the vaccine continues to be rolled out and the country attempts to return to normal.

Overall, I do think HSS is worth its place on my penny stocks section of my best stocks to buy now list. I do have other penny stocks on my list too and I think this FTSE stock is also an option worth considering too.

The post Best stocks to buy now: is this dirt-cheap FTSE stock a top pick for my ISA? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021