The 8 best penny stocks to buy now! Part 1

I’m searching for the best penny stocks to buy for my portfolio right now. Here are three I think could deliver colossal long-term returns.

| 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.

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.

Investing in penny stocks — in other words shares that cost below £1 each — is rarely boring. But from an investment perspective, this is not always a good thing. 

Low-cost UK shares like these are often traded in large volumes because of their cheapness. This can result in huge share price volatility and an investor can see the value of their holdings vanish in the blink of an eye. The lion’s share of penny stocks are also pretty small — at least compared with most other listed companies — so the chances of failure can be higher when trading conditions worsen.

Why I like low-cost UK shares

Investors such as me need to be aware of these dangers. But, in my view, they don’t make penny stocks a sub-asset class to avoid. Like all UK shares they expose you and I to a higher level of risk than, say, investing in a bog-standard savings account. With some decent research though it’s possible to minimise the risk and separate the truly great stocks from the dangerous duds.

I like penny stocks because they often tend to be smaller companies that have plenty of room to grow. Sure, their business models and the markets in which they operate can often be highly untested. But if these companies get it right they can soar in value over a number of years and make their shareholders a fortune in the process.

US tech giant Apple is perhaps one of the most famous ex-penny stocks which has now taken on legendary status. As recently as 2009, the iPhone maker’s shares traded inside penny stock territory of below $5. Today, they change hands for $171.70 apiece.

3 penny stocks I’d buy right now

In this first of two articles I will reveal eight of what I consider to be the best British penny stocks to buy right now. Here are the first three low-cost stocks I’m considering snapping up for my own shares portfolio (look out for Part 2 of this analysis tomorrow).

Brickability Group

One way I’d seek to make money from the UK’s colossal homes shortage is to buy shares in Brickability Group (LSE: BRCK). The government will have to ramp up housebuilding activity over the next decade to meet strong and enduring buyer demand. I therefore expect profits at this brick-making penny stock to rise sharply.

Brickability is already making waves as housebuilders steadily ramp up their construction activity. Last month, the building materials supplier actually said trading was ahead of forecast for the year to March 2022. This follows news of “strong” order books across the business in December, and news that orders stood at record highs at Brickability’s roofing division.

Brickability doesn’t just make bricks. It also supplies doors, windows, flooring, and various other products that give it extra opportunities to capitalise on the homebuilding boom. And it has plenty of liquidity with which to boost its product ranges through acquisitions, a stage on which it has been active in recent times.

I like Brickability a lot, even though a downturn in the housing market is an ever-present threat. This could happen for example if the Bank of England raises interest rates sharply over the next couple of years.

Pendragon

Auto retailer Pendragon (LSE: PDG) could face revenue problems in the short-to-medium term if inflation continues to soar. Latest data from Barclaycard showed consumer card spending rose 7.4% in January versus the same month in 2020. This was the slowest rate of growth since April 2021.

Sellers of big-ticket items like new cars are particularly vulnerable when shopping budgets come under pressure. But I feel Pendragon’s used-car operations will help take the sting out of things. Cars remain essential commodities for many people and they will switch down to cheaper, pre-owned vehicles in tough times.

I like Pendragon because I think the number of electric vehicles (EVs) it sells will soar over the next decade. People are rapidly switching to these low-emissions vehicles on a combination of rising environmental concerns and increasing fuel costs. They’re tipped to keep rising in popularity too as they become cheaper to produce and, by extension, to buy as well.

The Climate Change Committee, an independent advisory body to the government, predicts there could be 18m EVs on British roads by 2030. That compares with the 400,000 or so right now. I think Pendragon’s one of the best-value penny stocks to capitalise on this booming industry. Today, the retailer trades on a forward price-to-earnings (P/E) ratio of below 7 times.

Atlantic Lithium

Metals miner Atlantic Lithium (LSE: ALL) is another penny stock whose profits could soar as EV sales balloon. The raw material it plans to pull from the ground in Ghana is widely used in the batteries that power these next-generation vehicles.

Mining for any natural resource is highly risky business. And it could be argued that Atlantic Lithium carries more risk than many others in the industry. Exploration work at its Ewoyya lithium project remains highly encouraging.

Indeed, progress on this front has lifted the share price 70% higher over the past year. But the business hasn’t actually pulled any of the material out of the ground yet. In the absence of any revenues it could be forced to take on more debt. It may even tap shareholders to continue its operations.

Still, it’s my opinion that Atlantic Lithium is worth the risk, given the rate at which lithium demand is tipped to boom. Analysts at Statista think annual worldwide lithium consumption will hit 1.79m tonnes by 2030. That’s up considerably from the 497,000 tonnes predicted for this year. The final figure could be even higher if lawmakers — many of which are straining to hit their climate targets — introduce fresh incentives to boost EV sales.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple and Pendragon. 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

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »