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I’m on a quest to find the best penny stocks to buy following recent stock market volatility. Here are several top cheap UK shares I’m considering snapping up.
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Royston Wild
I am a seasoned freelance financial journalist specialising in global stock markets. I was formerly a stocks and commodities reporter -- and editor of print and online FX market coverage -- at Shares Magazine, providing information and analysis for readers to make sound investment decisions in the UK and overseas. I was also a regular contributor to the magazine's extensive catalogue of bookazines and trading guides. Prior to this I was a reporter with the BaseMetals.com and TheBullionDesk.com newswires, breaking the latest news and providing in-depth analyses of the base and precious metals markets.
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I’m looking for the best penny stocks to buy after the recent stock market correction. War in Ukraine — and the severe macroeconomic consequences of the tragic conflict — have raised the risks for many UK shares. But I believe that stocks as an asset class remains an attractive place to invest my cash.
Remember that the average long-term investor tends to enjoy an annual return of around 8%. That’s even accounting for periods of extreme market volatility like we’re seeing today. With this in mind let me talk you through six top penny stocks I’m thinking of buying right now.
Staffline Group
I’d buy Staffline Group as a way to play the buoyant UK jobs market. That’s even though the impact of soaring inflation on the British economy could damage profits at cyclical shares like this. I believe conditions could remain strong enough for Staffline and the broader recruitment industry to thrive despite of recent developments.
Just this week, employment advice service ACAS reported that a weighty 41% of UK firms expect to raise their headcount in 2022. This bodes well for Staffline, a company which provides both recruitment and training services to businesses. Underlying operating profit at Staffline leapt more than 108% in 2021 as the jobs market bounced back from the pandemic.
Residential Secure Income
I believe Residential Secure Income could be an ideal penny stock in these uncertain times. Property shares like these provide investors with protection from rising inflation as the rents they charge often lift in line with broader prices.
What’s more, this particular UK share specialises in renting out residential properties. This is one of the most resilient parts of the real estate market, providing investors with added safety. We all need a place to live even when economic conditions worsen, right?
This earnings stability gives Residential Secure Income the means to pay above-average dividends year after year. City brokers certainly expect this theme to continue and it’s why the penny stock’s yields sit at 5.3% and 5.4% for the next couple of fiscal years.
My main concern for Residential Secure Income is that talk of rent controls is hotting up as the cost of living crisis worsens. This could naturally take a big bite out of future earnings.
Pendragon
I’m looking for the best electric vehicle (EV) stocks to buy as demand for these low-emissions vehicles soars. I believe car retailer Pendragon is one UK share that could also thrive as people switch from petrol and diesel to battery- and hybrid-powered cars. Recent Ofgem research suggests that as many as one in four British households plan to purchase an EV or a plug-in hybrid by 2026.
Companies like Pendragon — which has partnered up with 21 major auto manufacturers — will clearly have an important part to play in this green driving revolution. However, I am mindful of the threat that elevated commodity prices pose to sales of these next-generation vehicles. Analysts at Morgan Stanley have predicted that recently-soaring nickel values alone could add $1,000 to the price of an EV.
TheWorks.co.uk
I also think buying value retail stocks like TheWorks.co.uk is a good idea as the cost of living crisis worsens. This penny stock sells games, toys, books, craft items and stationery cheaper than much of the high street. Therefore, it stands to pick up customers as strained shopping budgets and money worries force people to shop around. The Centre for Economics and Business Research says household financial confidence has just slumped to 10-year lows.
As its name suggests, TheWorks.co.uk also operates an online channel too. This gives it the edge against many other value retailers and will allow it to capitalise on the relentless rise of e-commerce. A word of warning however. Like its customers, TheWorks isn’t immune to inflationary pressures either. It faces a steady rise in labour and product costs that threaten to take a big bite out of margins.
Sportech
I think technology business Sportech could enjoy splendid profits growth as the online gambling industry steadily grows. This penny stock provides the means by which gambling operators and lottery organisers carry out their operations. It also owns gaming and sports venues in Connecticut and operates digital betting services in the US too.
The problem with investing in firms like Sportech is the direct (and indirect) consequences of tightening gambling laws. New laws are a constant threat that could hit demand for its tech from gambling companies, for example.
But Sportech has recently benefited from the loosening of laws in the US and last year signed a 10-year partnership agreement with Connecticut Lottery Corporation to operate in the state. I think its presence in the fast-growing American marketplace could supercharge earnings growth.
Aquila European Renewables Income
Demand for green energy was soaring before 2022 on concerns over the environment. It seems as if the switch away from oil and gas to renewable sources will speed up too following the invasion of Ukraine by Russia. Spiking fossil fuel values in response to sanctions mean countries will seek greater control over their energy supplies.
This bodes well for Aquila European Renewables Income, a stock that owns clean energy assets primarily in Portugal and in Scandinavia. The problem is that while its portfolio includes several Portuguese hydropower assets, the wind and solar farms it owns are more unreliable ways of generating power. This means earnings can suffer in periods of calm weather. Fellow wind energy play SSE’s profit warning of last year illustrates the perils associated with these new forms of energy.
Still, as a long-term investor, I think the benefits of owning this share outweigh the possibility of temporary bottom-line issues. I think firms like Aquila European Renewables Income will have a critical role to play as Europe ramps up its green energy policy.
