I’m hunting for the best penny stocks to buy as we move towards May. Here are four dirt-cheap UK shares that have caught my eye.
Staffline Group (LSE: STAF) is admittedly in some danger as the UK economy cools. If breakneck inflation persists and companies struggle then demand for its recruitment services could tank.
That said, I’m encouraged by the resilience of Britain’s labour market so far. And this could still encourage me to buy the penny stock today.
Indeed the Recruitment and Employment Confederation announced this week that, “Demand for permanent staff remains buoyant despite increased economic concerns”. Consumer price inflation hit fresh 30-year highs in April yet companies’ hiring intentions for the short-to-medium term has continued to rise.
Staffline itself celebrated the ongoing robustness of the UK jobs market a month ago as it described the “strong start” it had made to 2022.
The company added then that while economic uncertainty had increased, its “strong market share in resilient sectors” like food distribution, e-commerce, and logistics helps give it decent earnings visibility.
City analysts believe conditions will remain favourable for Staffline as well. They think the penny stock’s profits will soar 246% year-on-year in 2022. And this leaves it trading on a forward price-to-earnings growth (PEG) ratio of 0.1.
Any reading below one suggests that a stock could be undervalued. At these prices I think Staffline is a steal.
Rewards vs risks
Pub operator Marston’s (LSE: MARS) is another penny stock that could suffer as the cost of living crisis intensifies.
It’s a danger that brewing giant Heineken highlighted this week. On Wednesday it said that it the impact of increasing inflationary strain on household disposable income poses “a consequent risk to beer consumption later in the year”.
In the UK, where all Marston’s pubs are located, inflation is tipped to peak at 8.7% in 2022 by the Office for Budget Responsibility. That could really weigh on drinkers’ budgets.
Another cheap penny stock
Naturally the danger of ballooning living costs to pub operators is particularly high. The cost of a pint or a glass of wine at one of Marston’s inns is far more expensive than what you or I would pay for a bottle at the supermarket to drink at home.
Still, as a long-term investor I’m tempted to buy Marston’s for my portfolio. I think a forward price-to-earnings (P/E) ratio of 9.8 makes it too cheap to miss.
Data shows that Brits continue spending larger proportions of their discretionary income on leisure activities like drinking and eating out. This is an established trend that I think Marston’s will profit handsomely from when those current dangers pass.
City analysts believe the penny stock will continue recovering from the damage wrought by Covid-19 lockdowns, too. They think Marston’s will bounce back into profit this year (to September 2022) following two years of losses and grow earnings 38% in financial 2023 as well.
Protection from rising inflation
I think buying property stocks is a good way to protect myself against rampaging inflation. This is because rents by and large rise in line with broader prices. It’s a quality that not all UK stocks share.
I think Empiric Student Property (LSE: ESP) in particular could be a top buy right now. As well as helping me guard against inflation today, it could make me a lot of cash in the years ahead as student numbers jump and the need for dedicated accommodation increases.
Latest figures from the Higher Education Statistics Agency showed the number of UK students leap 8% in the 2020/2021 academic year. The number of full-time first-year students also grew at the fastest pace on record. These numbers illustrate the massive opportunity for Empiric Student Property.
City analysts are expecting the penny stock’s earnings to double year-on-year in 2022. Consequently the company trades on a forward PEG ratio of just 0.3.
I like Empiric Student Property too because of its healthy dividend yields. These sit at 3% and 4.1% for 2022 and 2023 respectively. I’d buy it despite the threat that Covid-19 poses to student enrolment levels in the near term.
Another dividend-paying penny stock to buy
Speaking of high dividend stocks, Centamin (LSE: CEY) is a gold stock whose big yields make it an attractive investment target. The forward yield here sits at a huge 5%.
There’s a couple of good reasons I think Centamin is a great buy today. The first is that I believe gold prices could be on the verge of soaring again as inflationary pressures grow. Demand for gold rises when the value of paper currenices come under scrutiny.
This week Bank of America said that it expects gold to hit $2,175 per ounce in the current climate. That’s around 100 bucks higher than summer 2020’s record peaks.
I also like gold stock Centamin because of the steps it’s taking to boost production over the medium-to-long term. The company plans to deliver 500,000 ounces of the shiny stuff each year from its Sukari flagship mine over the next decade. Centamin is on track to dig between 430,000 and 460,000 ounces of gold from its Egyptian asset in 2022.
Centamin’s a great way to make money from a strong gold price in my book. But of course there’s no certainty that precious metal prices will rise. Rapid central bank rate hiking and a robust rise in the US dollar could send gold prices lower.
However, on balance I think — as a long-term investor — that the benefits of owning Centamin shares offset the risks. I also think its undemanding forward P/E ratio of 12.2 times makes the penny stock a great buy (it’s expected to enjoy a 10% rise in annual profits this year).