My top 2 UK penny stocks to buy in August

Penny stocks can offer greater returns than other UK shares. Stuart Blair looks at two penny stocks that he thinks have great growth potential.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British Pennies on a Pound Note

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Compared to the big stocks on the FTSE 100, penny stocks can often be more risky. Despite this, the opportunity for growth is usually greater, and as such, they can be useful as part of a balanced portfolio. Here are two that I’d buy in August. 

A recent IPO

Belluscura (LSE: BELL) listed via AIM at the end of May, raising around £15m in the process. This money will be used to support the roll-out of the company’s flagship product, a portable oxygen concentrator.  This oxygen concentrator is significantly lighter than others on the market, and also more affordable. In March this year, it obtained FDA clearance.

Although the commercial launch of the product is not expected until the end of 2021, the company hopes that there will be significant demand. This is because around 250m people suffer from chronic obstructive pulmonary disease and have breathing difficulties. Further, the global respiratory care devices market is expected to reach $28.6bn by 2024, growing by over $1.7bn a year. The pandemic has increased this demand. Therefore, if Belluscura’s innovative device can satisfy some of this demand, the company should be able to generate big profits. This is the reason why I’d buy this penny stock, currently priced at 70p.

Sounds good? Yes, but there are risks I have to consider. For example, the business is in its very early stages of development and is still pre-revenue. This means that the investment is highly speculative, and there are a number of factors that could have a negative effect on the Belluscura share price. Demand for its products may be lower than expected, which would hinder the company’s ability to make a profit. Moreover, additional financing may be required in connection with the commercialisation of its oxygen concentrator. Any additional share issuance would lead to share dilution, and likely cause the share price to fall.

A penny stock for not much longer?

Unlike Belluscura, Airtel Africa (LSE: AAF) is a much more established company, operating in 14 different African countries. The firm provides both telecommunications and mobile money services and listed on the LSE in 2019. Since then, I have been impressed with the way that the FTSE 250 stock has grown profits and expanded its presence in Africa (I already hold some shares). Its recent trading update illustrates this growth perfectly.

In the Q1 update, Airtel Africa reported growth across the whole of the business. For example, operating profits were $352m, up nearly 70% from the year before. The customer base also grew by 8.4% to over 120m people. The Airtel Africa share price has risen over 10% since, but I believe that there is further to go. 

Despite these positives, there is the risk of a third wave of coronavirus in many of these African countries. This is especially true due to the low vaccination levels in these countries. Further lockdowns could be the result and this is likely to have an adverse effect on Airtel Africa’s revenues and the share price. Accordingly, despite its growth potential, there are factors which could severely restrict this.

Yet I feel confident about its future and with recent share price rises, I feel Airtel Africa may not remain a penny stock for much longer. I may add more shares to my portfolio soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair owns shares in Airtel Africa Plc. The Motley Fool UK has recommended Airtel Africa Plc. 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.

More on Investing Articles

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Under £14 now, Persimmon’s share price is trading at less than half its fair value by my reckoning

Persimmon’s share price fell a lot over the past year, but I think a new home-building initiative and improved macroeconomic…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this FTSE 100 pharma gem now a brilliant bargain?

This FTSE 100 pharmaceutical giant has been hit by fears of US tariffs and litigation over a key product, but…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Is Warren Buffett losing his touch?

Our writer's noticed that Warren Buffett’s investment vehicle has underperformed the S&P 500 during three of the past four years.…

Read more »

Investing Articles

Non-energy minerals are the top performers in 2025. These small-cap FTSE shares are leading the charge

Mark Hartley examines which sectors are doing well in 2025 and the FTSE shares that investors should consider to benefit…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Buying 10,000 Vodafone shares generates a passive income of…

Vodafone shares have had a rough ride, with dividends slashed in half. But with its turnaround making steady progress, is…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Buying 1,000 Aviva shares generates an income of…

Aviva shares could be primed to thrive in the long run if its takeover of Direct Line is a success,…

Read more »

Investing Articles

At today’s price, buying 1,000 British American Tobacco shares generates a second income of…

Tobacco companies may not be popular, but the British American Tobacco share price is on the rise, along with its…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

The cheapest UK stock in my ISA is…

This UK stock currently trades at a massive discount to the market. Edward Sheldon believes it's mispriced and that there's…

Read more »