Penny stocks can be a little like Marmite. A lot of UK share investors avoid them like the plague, disliking the price volatility that often accompanies low-cost, low-volume stocks like these. Many people also prefer to buy larger companies which (in theory at least) have better financial strength with which to achieve their growth plans, or survive during tough economic times.
That said, I like to scan the market for great penny stocks to buy. The reluctance of many to take the plunge with low-cost UK shares like these gives me the chance to root out an overlooked bargain or two.
As someone who invests for the long term, I’m not overly concerned by the possibility of temporary share price volatility. I buy shares that I think will rise in price during a period of years, not days, weeks, or months. I don’t rule out buying a quality share just because it trades below £1. It’s worth remembering that US tech giant Apple once traded inside penny stock territory before sky-rocketing to current levels.
2 cheap UK shares on my radar
With this in mind, here are two penny stocks looking quite unloved. I’d buy them following recent share price falls and aim to hold them for the long term.
Ready to clean up
The McBride (LSE: MCB) share price has tanked 20% in the past six months, meaning it’s just 18% more expensive than it was a year ago. The business makes a broad range of own-branded household products for retailers like supermarkets. And it’s been battered by a sharp rise in input costs of late that have prompted a series of profit warnings. The escalating supply chain crisis means further trouble could be coming down the track.
However, as a patient investor, there’s a lot I like about McBride. I think profits will rise solidly over the long term as rising consumer demand for value boosts sales of cheaper, own-branded products. Furthermore, I think volumes of the penny stock’s cleaning products will rise amid growing awareness over hygiene following the global pandemic. I fully expect its share price to bounce back strongly.
Another unloved penny stock to buy
Concerns over the British economic recovery have dragged Breedon Group (LSE: BREE) lower in recent months. It’s down 10% from its share price three months ago, reducing gains on a 12-month basis to 33%.
The construction materials supplier is highly cyclical. And so it’s no surprise that investors have been selling the penny stock as signs of an economic slowdown have increased. Breedon owns several quarries along with cement plants, ready-mix concrete plants and asphalt plants.
But as a long-term investor, I think Breedon’s profits outlook is compelling. Demand for its products should step up several notches as housebuilding rates in the UK improve. It will also benefit from rising investment to upgrade Britain’s creaking infrastructure.
Like McBride, I think this penny stock could deliver tremendous shareholder returns in the years ahead.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. 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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