A lot of UK share investors don’t like to buy penny stocks. Low-cost shares like these can experience bouts of extreme share price choppiness that can make the hair stand on end.
As a long-term investor I’m not discouraged by the possibility of wild price movements, however. If one takes the time and effort to identify quality stocks there’s a great chance they’ll rise in price over an extended time horizon, regardless of their initial purchase price.
Here are two UK penny stocks I’m thinking of buying for the next decade.
A cheap UK penny stock on my radar
Having exposure to gold is a good idea as insurance against unforeseen economic crisis. And I think a good way for me to do this is by buying penny stock Shanta Gold (LSE: SHG). At current prices of 13p per share this African gold producer trades on a forward price-to-earnings (P/E) ratio of just seven times.
I wouldn’t just snap up this UK share because I think bullion prices could soar again as inflation rises and the US dollar erodes. The business is taking steps to supercharge production from its top-quality Tanzanian assets that will result in average annual production of 116,000 ounces per year between 2023 and 2025. This compares with the 83,000 ounces of metal which Shanta heaved out the ground in 2020. Moreover, under its new five-year plan, the penny stock also plans to rapidly slash its cost base over the period.
I think there’s a lot to like about Shanta Gold today. But it’s important for me to remember that the business of metals mining is fraught with challenges that can hit production levels and result in unexpected costs, driving a spike through profits forecasts. It’s quite possible, then, that earnings at this Tanzanian mining play could fall short of expectations.
Airtel Africa (LSE: AAF) could also be one of the best low-cost penny stocks for me to buy right now. At recent prices of 89p per share the African telecoms titan trades on a forward P/E ratio of seven times. This figure also sits inside the widely regarded bargain watermark of 10 times and below.
It’s true that Airtel Africa’s markets are becoming increasingly competitive. Local operators like Africell and global giants such as Vodafone invest heavily are investing heavily in their networks. It’s also correct that the penny stock’s operations are highly capital intensive which can deal a blow to earnings growth. But I think this penny stock’s long-term profits outlook still looks mighty exciting.
A rapidly rising middle class in Airtel Africa’s sub-saharan markets is driving telecoms demand to the stars. The boffins at Fitch think that there will be 1.1bn mobile subscribers by the end of the decade, up from around 851m as of last year. And looking away from telecoms for a second, I expect demand for Airtel Africa’s mobile money services to balloon as demand for financial services also grows.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc. 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.