Many investors see penny stocks as ultra-risky and volatile. Granted, plenty of small UK stocks priced under £1 can be prone to wild price moves.
That said, they shouldn’t be completely dismissed, in my opinion. Several UK penny stocks offer shareholders excellent potential returns.
High-flying penny stocks
Despite commonly being known for its use in balloons, that forms only a small part of its global usage. It’s used more in high-growth industries, including MRI scanners, data centres, and space rockets.
Helium supply is limited and demand is growing, leading to rising prices. If it can successfully find, extract, and supply the growing demand, Helium One could benefit.
A word of warning, however. Exploration is very risky. There are no guarantees that the expected levels of helium will be found and extracted. Also, mining licences are required and can be at risk of alteration by authorities.
Mining for penny stocks
Another high-risk, high-reward penny stock I’d consider buying is Jubilee Metals (LSE:JLP). It’s exposed to and supported by strong and growing platinum-group-metal (PGM) prices.
Higher metal prices and increased output have helped the exploration company to significantly grow profits. In the second half of 2020, Jubilee saw profit jump by a whopping 355%.
Further growth could come from copper operations. That’s especially so as copper demand is being supported by global growth in the electric vehicle industry and US infrastructure spending.
That said, penny stocks in the mining industry can be high-risk. A fall in metal prices could have a material impact on Jubilee’s earnings. And some parts of the world it operates in carry additional risks.
Overall, I’d consider buying Jubilee Metals for the high-risk, high-reward part of my Stocks and Shares ISA.
The next penny stock I’d consider in June is Renold (LSE:RNO). With a market capitalisation of just £61m, it’s tiny. However, what it lacks in size, it makes up for in potential. It’s not well known, but many of us may have walked past one of its industrial chains.
It’s a market leader in high-precision industrial chains and innovations. These have diverse applications, including escalators, underground trains, and even theme park rides.
Renold has a resilient business model. It’s a high-quality and reliable brand. Clients also tend to make repeat purchases for its chains. When chains need replacing in critical equipment, a high-quality product is the first point of call.
It’s currently undergoing a long-running turnaround plan. The results of this could deliver higher margins this year, in my opinion.
That said, there are some risks. It has large pension liabilities that could prevent it from increasing dividend payments. Also, if its turnaround and restructuring plans don’t work out, then the upside to its share price could be limited.
Looking at penny stocks can be a great way to find under-researched and relatively unknown companies. Risks can be higher, but overall, I think Renold is a cheap stock. As a result, I’d consider adding it to my Stocks and Shares ISA in June.