Stocks

2 top penny stocks to buy – The Motley Fool UK

I’m scouring UK share markets for some of the best low-cost stocks to buy for my investment portfolio. Here are two great penny stocks — companies that can be bought for less than £1 a share — that have caught my attention.

Playing the gold price

Having exposure to gold is a popular idea for many UK share investors. This is because the precious metal can help protect investment portfolios when unforeseen economic, political, and social crises strike. Indeed, a large number of stock pickers made a fortune last year when gold prices soared to record peaks above $2,000 per ounce following the coronavirus outbreak.

Many investors prefer buying gold-producing shares rather than the metal itself (or a bullion-backed instrument like an exchange-traded fund). This is because some UK mining shares provide buyers the added bonus of dividends. Physical metal like bars and coins, and products like ETFs, only benefit investors when gold prices rise in value.

I think buying the likes of Shanta Gold (LSE: SHG) gives me the best of both worlds. This particular penny stock (which trades at 16.7p) offers plenty for me to sink my teeth into. Firstly, the AIM-traded firm carries an inflation-busting 1.8% dividend yield for 2021. Secondly, the East Africa-focussed digger trades on a forward price-to-earnings (P/E) ratio of 8 times. This is inside the widely-regarded bargain watermark of 10 times and below.

It can be argued that buying UK gold mining shares is more risky than buying gold or gold-backed financial instruments itself. It’s certainly true that the business of pulling raw materials out the ground is complex and unpredictable. And Shanta Gold is not immune to these threats, which can result in huge unexpected costs and lost revenues.

But I believe these risks are baked into Shanta Gold’s low share price. Besides, this particular digger is set to ramp up production at its flagship New Luika mine in Tanzania to supercharge profits. Ongoing analysis of its exploration and development projects provides plenty to get excited about in the longer term too.

Another penny stock I’d buy

I think that Airtel Africa (LSE: AAF) is another great low-cost UK share that I’d buy for dividend income. The FTSE 250 telecoms firm boasts a 3.6% forward dividend yield at current prices of 82.4p. What’s more, this penny stock trades on an undemanding corresponding P/E ratio of around 12 times too.

Airtel Africa offers the chance to ride soaring telecoms demand in emerging markets. A recent report from industry consultancy GSMA suggested that the number of mobile Internet users will leap to 477m by 2025 from 272m in 2019. I also like this particular penny stock as its a big player in the fast-growing mobile money segment too. Despite the ever-present threat of regulatory pressures in its African markets, I still expect this UK share to deliver great long-term shareholder returns.

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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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