3 penny shares I’d buy to hold for the next 5 years!

Buying penny shares can be high risk. But when investors get it right, these small-cap stocks can supercharge long-term capital gains.

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Here are three top penny shares I’ll be looking to buy when I have extra cash to invest.

Gaming Realms

A change to gambling legislation is a constant threat to Gaming Realms (LSE:GMR). But the profits potential here remains immense as online gaming goes from strength to strength.

This UK share builds and licences casino games that are played on mobile phones and tablets. Its most famous franchise is the Slingo line of games, the popularity of which helped drive group revenues 27% higher in 2022.

Unsurprisingly Gaming Realms remains committed to developing its cash cow. It launched three new Slingo titles last year and signed an intellectual property (IP) agreement to release a Tetris-based game later in 2023.

I also like the company’s ongoing commitment to rapid expansion to boost user numbers. It has launched with 13 new partners in the year to date (including with Bet365 in the UK and Betway in Pennsylvania). I’m especially excited by plans for further launches in the gigantic US marketplace.

OnTheMarket

The dangers to Britain’s homes market remain severe as interest rates rise and the cost-of-living crisis endures. Property listings business OnTheMarket (LSE: OTMP) is one UK share that could suffer if housebuyer appetite remains weak.

Yet encouragingly the company continues to grow revenues at a rapid pace. And its technology-led approach is proving popular with major estate agency chains.

OnTheMarket is moving away from simply providing property listings. It’s designing technologies that provide a one-stop-shop for estate agents and housebuilders, its platforms also providing data and information management and marketing functions.

This provides considerable potential for earnings. And pleasingly the company has a strong balance sheet to help it develop its suite of tech products. It had cash of £10.4m on its books at the end of 2022.

Rainbow Rare Earths

Profits at commodities businesses like Rainbow Rare Earths (LSE:RBW) are very vulnerable during economic downturns. As consumers and businesses feel the pinch, the amount they spend on products loaded with metals can be impacted.

But this wouldn’t deter me from investing in certain mining stocks given that we’re likely on the cusp of a new ‘commodities supercycle.’ Demand for rare earth minerals (such as neodymium and praseodymium) is tipped to grow strongly too as the manufacturing of electric vehicles and renewable energy projects both heat up.

Rainbow Rare Earths owns the Phalaborwa mining project in South Africa and Gakara asset in Burundi. Both of these are significant sources of such minor metals. They also have other benefits like close proximity to good infrastructure and low cost bases when production begins. The profits potential here is colossal.

Mine development is a risky business and setbacks can place huge strain on the balance sheet. But Rainbow is well capitalised following a recent $7.52m share placing that will fund Phalaborwa through to early 2024. This provides an added layer of protection to investors and makes the stock worthy of serious attention, I feel.

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 no position in any of the shares mentioned. 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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