5 UK penny shares to buy with £5,000 today

It’s hard to remember a time when there were as many tempting penny shares around as now. Here are five of my top picks.

Woman looking at a jar of pennies

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I’m wary of penny shares right down at the bottom of the price scale. At just a couple of pennies, they can be very volatile and are often more costly to trade.

But between there and the cutoff point of 99p, I see plenty of potential buys. I’ve been identifying five shares I think investors should consider buying with £5,000 today.

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Penny share #1: Lloyds

I have to start with Lloyds Banking Group. Lloyds shares have plunged as low as 45p, as I write. That’s a 9% loss over the past 12 months.

There are good reasons to avoid Lloyds. Huge rises in the cost of living threaten increasing bad debt provisions. And any fall in the housing market could hurt the UK’s biggest mortgage lender. But considering how hard things could be, I’m surprised the fall in valuation has been so modest.

I’m definitely seeing risks, but I also think I see resilience and a positive future.

Penny share #2: Capita

Capita trades at 25p, down 39% over 12 months — and down 93% in five years. It’s a handy reminder that companies usually need something drastic to get down to penny share valuations.

Here, we had some outsourcing contract disasters. EPS plummeted by 94% between 2017 and 2021 as a result. And debt climbed.

But 2021 saw some debt reduction, and Capita has won new contracts in 2022. Analysts are forecasting a turnaround in profits. It’s still early days, but I rate Capita as one for penny share investors to watch, if not to buy right now.

Penny share #3: Atlantic Lithium

Lithium is big news these days, thanks to demand for batteries. The big driver recently has been the electric vehicle market. Companies like Tesla and NIO couldn’t manage without it.

The Atlantic Lithium share price has trebled in 12 months. But it suffered lengthy weakness prior to that. The exploration and mining company has an agreement with lithium hydroxide producer Piedmont Lithium, which should see its key Ewoyaa Project in Ghana through to production.

No profits yet though, which is risky. But it could turn out to be a profitable penny share purchase.

Penny share #4: Staffline

Recruitment specialist Staffline was hammered by the pandemic. And now we face soaring inflation and a horrendous economic outlook. The risks are certainly there.

But 2021 brought a return to profit, and analysts are forecasting more of the same. In its most recent update, the company said it had “made a solid start to 2022” in spite of current conditions. Operating cash flow is in line with expectations too.

I believe Staffline could be one of the best penny shares around, at 50p.

Penny share #5: Rolls-Royce

While Rolls-Royce shares remain in penny share territory, at 86p as I write, I just can’t ignore them. It’s very much a ‘should I, shouldn’t I?’ one for me.

On the positive side, I’m convinced that Rolls will break out above the magic £1 level as the aviation industry recovers. I just have no idea when.

Against that, I don’t like the debt the pandemic has left the company saddled with. And I fear that might keep the shares down for some time to come. I reckon it’s one to watch, though.

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Alan Oscroft has positions in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group and Tesla. 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.

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 considered, so you should consider taking independent financial advice.

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