I like shopping for penny stocks. But their low cost and small market caps mean that a lot of UK share investors consider them too risky. This gives other share pickers like me the chance to nip in and grab some undervalued gems.
Here are what I consider to be two of the best penny stocks I’d buy right now.
Pot of gold
I think Rainbow Rare Earths (LSE: RBW) could be a great one to buy for the next 10 years at least.
The 17 metallic elements that make up the rare earth spectrum are essential in the manufacture of a broad range of electronic products. They can be found in mobile phones, wind turbines, camera lenses, catalytic converters and x-ray machines among other things. And some experts believe that supply of these special metals will fail to keep pace with booming consumption. Analysts at Adamas Intelligence think the problem will worsen too. They reckon that the “demand growth of the 2020s will soon be dwarfed by the astronomical demand growth of the 2030s.”
This bodes extremely well for prices of the metals and consequently profits at the likes of Rainbow Rare Earths. This particular mining play holds a 90% stake in the Gakara project in Burundi, one of the richest rare earth deposits on the planet. I’d be aware, though, that some electric car manufacturers are taking steps to reduce the use of rare earths in their vehicles. Falling demand from this key market could have a significant impact on rare earths demand.
Another penny stock I’d buy
I think Airtel Africa (LSE: AAF) is a stock that could also deliver splendid returns over the next decade. The company offers telecoms and mobile money services across 14 African countries including continental powerhouses Nigeria and Kenya. It therefore has two chances to exploit soaring personal income levels in these emerging markets.
Airtel Africa’s customer base grew by 8.4% in the three months to June 2021, to a whopping 120.8m people. Its mobile data business grew its base by almost 15% year-on-year in the quarter. And its mobile money division’s customer numbers rose by an eye-popping 25% over the period. No wonder major businesses like Mastercard and the Qatar Investment Authority have been lining up recently to buy a stake in Airtel’s financial services business. EY Club estimates that as many as 60% of Nigerians, for example, don’t have access to a bank account.
It’s important for me to remember that Airtel Africa isn’t the only major player in these fast-growing markets. Telecoms titans like Vodafone and Africell are also spending heavily to build their own customer bases. Global blue-chips like Vodafone and local operators like PalmPay and Paystack are also rapidly investing in the mobile payments market. That doesn’t quash my belief that Airtel Africa could still deliver explosive returns over the next 10 years, however.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Mastercard. 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.