Many UK share investors don’t like penny stocks. This is because their low liquidity can lead to extreme price volatility and share pickers can often end up selling at a big discount to what they bought for.
As a long-term investor, though, I’m not put off by the prospect of fresh choppiness. If I buy quality stocks, regardless of whether or not they trade below £1, I think they should still surge in price over a long time horizon. Here are two penny stocks I’d happily buy in June.
A low-cost penny stock with BIG dividends
In recent days I wrote about FTSE 100 share WPP and explained how marketing spending is steadily picking up momentum. Businesses are spending shedloads on advertising to attract customers following the shockwave of Covid-19. But it’s not just the ad agencies that are benefitting from this upswing, of course.
Take penny stock XLMedia (LSE: XLM) for instance. This UK share owns and operates around 2,000 websites and provides digital marketing data spanning the betting and sports industries. It is therefore well placed to ride the broader pick-up in advertising activity. And what’s more, the company is expanding its presence in the US to turbocharge revenues growth.
Today XL Media trades at 46.3p per share. This leaves it trading on a mega-low forward price-to-earnings (P/E) ratio of below 11 times. The company faces significant indirect risks from the gambling regulatory landscape as many of its clients are online betting companies. But I think its low cost, and its inflation-mashing 5.1% dividend yield, still make it a great buy today.
Putting the pedal to the metal
I think Pendragon (LSE: PDG) is another UK penny stock that also offers considerable value for money. At 18.5p per share the car retailer trades on a forward P/E ratio of 12 times. Firms involved in the sale and manufacture of cars tend to bounce back strongly in the early part of the new economic cycle. This is because demand for autos is one of the quickest areas of retail to recover when consumer confidence improves.
It’s a phenomenon that is already being borne out in Pendragon’s trading performances of late. Its newest update last month showed like-for-like operating profit swing 69% higher in the three months to March. Freshest data from the Society of Motor Manufacturers and Traders (or SMMT) shows that broader car sales in Britain have kept soaring since then too.
The SMMT said that 141,583 cars rolled out of UK showrooms last month. That was around 33 times higher than the number of sold vehicles in April 2020. And the robust result prompted the body to upgrade its full-year growth forecasts to 14%. Of course this penny stock’s recovery could stutter if the recent rise in Covid-19 cases continues and its showrooms are closed down again. But I still think its cheap share price still makes Pendragon an attractive UK share for me to buy in June.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pendragon. 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.