The outlook for the global economy is becoming steadily bleaker as inflation shoots through the roof. The IMF has just trimmed its growth forecasts on account of the ongoing pandemic and supply chain problems across the world. GDP estimates in developed economies took the brunt of the cuts too (the US 2021 growth forecast, reduced to 6%, had a full 1% lopped off).
Investor appetite for low-cost UK shares like penny stocks has been particularly damaged by the worsening outlook. This is perhaps understandable as smaller-cap stocks (broadly speaking) don’t have the sort of financial strength as larger-cap ones.
That’s not always the case, of course. Indeed, I feel many economically-robust penny stocks have been unjustifiably sold off along with more vulnerable ones. The good news for me is that I’ve a chance to buy some brilliant shares at a knock-down price.
2 penny stocks on my radar
I think these UK shares are some of the best penny stocks to buy following recent selloffs:
#1: Cash rich
I can fully understand why Surface Transforms (LSE: SCT) share price has fallen 10% over the past month. The automotive industry has been particularly affected by supply chain disruptions and, more specifically, by a shortage of semiconductors. As a long-term investor though, I think this weakness represents an attractive dip-buying opportunity.
The number of high-wealth individuals is expected to rocket over the next decade. This means that sports car sales are also tipped to rise strongly, something which bodes well for Surface Transforms. The ceramic brakes it manufactures are widely used in the production of high-performance vehicles.
Surface Transforms had a reassuring £17.2m worth of cash on the balance sheet as of June. This should assuage any fears over the company’s flexibility should the car industry remain under the cosh. The penny stock’s healthy balance sheet should also help it to make good on its revamped manufacturing strategy.
It also plans to accelerate the development of its Knowsley factory to delivery £50m worth of annual sales by 2023. That compares with £35m today.
#2: Building materials
The Brickability Group (LSE: BRCK) share price recently fell below the £1 penny stock limit. Indeed, it’s down around 5% over the past month as concerns over rocketing inflation have fed concerns that the Bank of England could raise rates.
Increasing interest rates would certainly have an adverse impact on broader homes affordability, something that could filter through to affect construction rates. While the risks have risen I still believe that the brick manufacturer’s profits outlook remains extremely attractive.
Interest rates should remain ultra low compared to historical standards, after all. So I expect new homes demand to remain pretty robust. And support from government from first-time buyers remains in play of course.
Don’t forget that the government plans to create 300,000 new residential properties a year by the middle of the decade. And it’s taking steps to reduce red tape to make this a reality. So I expect Brickability to deliver excellent shareholder profits in the coming years.
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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