Penny shares, as the name suggests, trade for under a pound. But while they may be cheaply priced, that doesn’t necessarily mean that they are good value. Like any stock, before adding a penny share to my portfolio I wouldn’t just look at its price. I’d also want to consider its future business prospects.
On that basis, here are three UK penny shares I would consider adding to my portfolio now.
Penny shares to buy now: Lloyds
It may seem incredible that banking giant Lloyds (LSE: LLOY) ranks among the penny shares on the London stock exchange. Indeed, it is the only large British bank to have such a low share price.
That reflects ongoing investor nervousness about the bank’s performance, as during the last financial crisis its business fared badly. I think it’s a stronger business now, though. Last year, for example, while it made large provisions for potential bad loans, it later released many of them. It ended up making over £1bn in annual profit even amid the pandemic.
I like the bank’s geographic focus on the UK and its comparatively simplified banking business model compared to competitors that operate investment banks. Lloyds’s strategic focus also brings risks, though. For example, if the UK economy contracts, Lloyds’ large mortgage book could start to show losses. But with its strong brand recognition, restored dividend, and market-leading mortgage business, Lloyds is among UK penny shares I would add to my portfolio now.
Bus and coach operator among penny shares
Another of the penny shares I would consider adding to my portfolio at the moment is bus operator Stagecoach (LSE: SGC). Its share price has been moving around lately after talk of a possible takeover bid by rival National Express. But the Stagecoach share price still hasn’t broken through the pound barrier.
I think the economics of the business are attractive. Demand for bus travel is typically fairly resilient. In many places, there are few or no alternative forms of public transport. Even when there is a sudden demand shock, as happened last year, the essential nature of the service means that it often attracts financial support from the government. That’s not guaranteed, though, and the company faces other risks too. For example, labour shortages could force it to increase wages. That would hurt future profitability.
Penny shares to buy now: Income and Growth
The third name on my list of UK penny shares to buy now for my portfolio is the venture capital trust Income and Growth.
The trust invests in small and medium-sized companies, hoping to get the benefits of being an early investor when they grow. With early stage investment, of course, there is a risk that such companies in fact do not grow and the trust loses money. But with its generous dividend policy and the potential for capital growth, Income and Growth earns a place on my list of shares to buy now for my portfolio.
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Christopher Ruane owns shares in Lloyds Banking Group and Stagecoach. The Motley Fool UK has recommended Lloyds Banking Group. 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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