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2 penny stocks to buy

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It’s true that cheap UK shares like penny stocks can be prone to extreme share price volatility. But this is not something that puts me off investing in such low-cost stocks. This is because I buy UK shares based on what returns I think I’ll make over the long term. Over this sort of timeframe any quality stock — regardless of the initial purchase price — has a great chance of rising strongly in value. Former US penny stock Apple is a perfect example of this.

With this in mind here are two top UK stocks on my radar today.

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A top penny stock for the travel recovery

Airlines like Ryanair Holdings (LSE: RYA) aren’t out of the woods just yet. Covid-19 infection rates continue to rise, after all. And travel restrictions in its European territories could remain in effect or possibly become even more restrictive.

However, the discussion of major changes to Britain’s travel rules by ministers today has improved the picture greatly for the business. As I’ve noted before, I believe Ryanair has enough financial strength to survive a prolonged period of tough travel regulations. But today’s reports (if confirmed) mean seriously-good news for its near-term profits outlook.

I’d buy Ryanair shares because of the bright outlook for the budget airline sector for the next decade at least. It’s a market in which the Irish flyer will enjoy much-reduced competition following the Covid-19 crisis. And Ryanair is investing heavily to make the most of the opportunity. Yesterday it announced plans to carry 225m passengers a year by 2026. That’s up 25m from its prior target.

The main event

Arena Events Group (LSE: ARE) also faces significant danger given the recent resurgence in Covid-19 cases. But as things stand, current government regulations are allowing the entertainment sector to gradually get back on its feet.

And this is good news for this particular penny stock, one that provides large temporary structures like grandstands, fences and ice rinks (along with other items like catering facilities, bars and furniture) to leisure and sporting events. Like Ryanair, Arena Events Group also has strong financial reserves to fall back on in case a worsening coronavirus crisis affects its operations. In July it felt confident enough to pay back a loan from major shareholder Lombard Odier Investment Management early.

Renting out equipment for events is a highly-competitive industry. But I’m encouraged by Arena Events’ good record of securing multi-year contracts with its clients to offset this problem. Indeed, in recent weeks it’s signed a deal to provide work for a division of golf’s PGA Tour until the middle of 2023. It also sealed “a multi-million pound contract” to provide one of the venue clusters at the XXII Commonwealth Games in Birmingham in 2022. Like Ryanair, I’d buy this penny stock today and aim to hold it for the long haul.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. 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.

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