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Forget Lloyds! 2 cheap penny stocks I’d buy instead

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Many people believe that penny stock investing involves picking small and obscure companies. The Lloyds Banking Group (LSE:LLOY) share price shows that this isn’t the case. This is a FTSE 100 stock, but at 53.4p per share, it  trades comfortably inside penny stock territory below £1.

History shows that penny stock investors can end up making big returns by identifying the growth heroes of tomorrow. But Lloyds isn’t a low-cost UK share I’m thinking of buying today. It has things in its favour like a trusted brand name, an improving digital banking operation and considerable exposure to Britain’s strong housing market.

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However, as a long-term investor I worry about the prospect of prolonged economic weakness in Britain and the damage this could cause to cyclical shares like UK banks. I also think the Bank of England will keep interest rates well below historical norms, hitting profits at the likes of Lloyds even further.

Why I’m avoiding Lloyds today

It’s true that the Lloyds share price looks mighty cheap right now. The penny stock trades on a P/E ratio of just 8.6 times for 2022. It also boasts a meaty 4.8% dividend yield.

But why should I take a chance with Lloyds when there are many other dirt-cheap penny stocks for me to choose from today? Here are two such shares I’d much rather buy today.

7.1% dividend yields

Financial services giant Old Mutual (LSE: OMU) is a stock that shares some qualities with Prudential, a FTSE 100 equity I already own. Both companies have built strong brand recognition over many generations (Old Mutual was founded just three years before The Pru, in 1845). These two businesses have also put emerging markets at the centre of their growth strategies. Prudential is building around Asia while Old Mutual’s centred on fast-growing African economies.

You might not be surprised to hear that Old Mutual’s a UK share I’d also happily buy for 2022, then. The financial products market in South Africa and other sub-Saharan nations is massively underpenetrated. This leaves plenty of room for sales growth as booming wealth levels drive demand for savings, investment and protection products.

At 65.7p per share Old Mutual trades on a forward P/E ratio of just 8.5 times. The penny stock also carries a mighty 7.1% dividend yield. I’d buy the company even though intensifying competition is a threat I’d need to keep an eye on.

Another superior penny stock

I also think Triple Point Social Housing REIT’s a more attractive penny stock than Lloyds right now. I think it’s in better shape to deliver long-term profits growth as demand for specialist social housing rapidly grows. This UK share provides accommodation for individuals with special living requirements. And it continues to build its property portfolio to boost its growth opportunities. In late December it acquired five properties for its nationwide portfolio for a total cost of £9.4m.

Triple Point trades on a forward P/E ratio of 9 times at current prices of 96.4p. It boasts a huge 5.8% dividend yield too. I’d buy it even though a lack of viable acquisitions could hit its growth plans.

Should you invest £1,000 in Lloyds right now?

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Royston Wild owns Prudential. The Motley Fool UK has recommended Lloyds Banking Group and Prudential. 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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