UK share investors need to be careful before taking the plunge with penny stocks. Stocks which cost less than £1 apiece can be subjected to extreme price volatility due to their low cost. Investors need to be on their toes and be tolerant of a little more risk before buying these sort of shares.
That said, I don’t think that investing in penny stocks should be dismissed out of hand. There are many top UK shares in this bracket which have the potential to deliver huge shareholder returns in the years ahead. Here are three I’m thinking of buying for my ISA.
A medical marvel
Demand for medical cannabis is tipped to detonate over the next decade. And one potentially-lucrative way for stock investors to play this theme is to invest in Kanabo Group (LSE: KNB).
This UK share — which only began trading in London last month — manufactures cannabidiol (CBD) oil products for the legal medicinal market. But its long-term growth plans pivot around the development of its medical-grade VapePod vapouriser.
Kanabo hopes its technology will be for the cannabis market what Nespresso is for instant coffee. That said, competition is fierce in the fast-growing medical cannabis industry. And this penny stock is a tiddler compared to the mighty US players. There’s a chance that it might be edged out of the market.
Another high-growth penny stock?
I believe owning shares that operate in emerging markets is essential. A combination of soaring population numbers and rising wealth levels in some of these parts of the world have the capacity to deliver stunning profits growth for many UK shares.
I consider Airtel Africa (LSE: AAF) to be one of these. This penny stock provides telecommunications services in Africa, a market which is tipped for high growth in the years ahead. Airtel saw revenues blast 19% higher in the nine months to December.
Bear in mind though, this UK telecoms share reports in dollars but trades in local African currencies. This leaves it at the mercy of whipping exchange rate movements that can take a huge bite out of earnings.
A top UK property share
I’d also buy Empiric Student Property (LSE: ESP) in the hope of big long-term returns. As the name suggests, this UK penny stock provides accommodation to students, a sector which has pretty big growth potential.
Latest data from higher education application body UCAS showed the number of students enrolling for university courses rose 5.4% in the 2020/2021 financial year. This represented a record high. And the number of those coming from overseas surged 7.5% year-on-year.
British universities have always been highly popular with foreign students, people who have an obvious need for accommodation. And there’s no reason to expect this theme to expire any time soon.
A word of warning, however. Empiric remains less active on the acquisition stage than some of its rivals. And this could allow its competitors to steal a march on it which could, in turn, compromise long-term growth.
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.