What are the best penny stocks for UK traders and investors to watch?
Want to know more about penny stocks? Find our top penny stocks here and learn how to take a position on them in the UK through trading or investing.
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What is a penny stock?
A penny stock is a unit of common stock that trades with a low share price: below £1 in the UK and below $5 in the US. They’re also referred to as penny shares. The companies will also have a lower market cap: under £100 million in the UK and under $300 million in the US.
These stocks are regarded as a more speculative investment because they’re geared for growth, with many penny companies yet to generate noteworthy income.
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Best UK penny stocks to watch
These are not necessarily the best performing penny stocks, with several having seen their share prices decline over the past year. This list shouldn’t be construed as financial advice.
Many of these penny stocks have been hit by the wider market downturn since the start of 2022. However, while their share prices may have fallen in recent months, this is not necessarily a reflection of their true value.
However, with interest rates rising, it is true that growth is becoming more expensive, increasing the risk of investing in many penny stocks. Those on this list could well see further falls.
Lords Group Trading (LON: LORD)
Lords Group Trading shares are down 50% year-to-date to just 61p. Of course, the buildings materials business has slumped ever since launching its Initial Public Offering on the FTSE AIM in July 2021. And with the average 2-year fixed-rate mortgage now above 6%, concerns are spreading that a significant housing market correction is coming.
However, in H1 results, Lords saw revenue rise by 19.7% year-over-year to £214.2 million, while adjusted EDITBA rose by 27.1% to £14.2 million.
Further, the group argues that it ‘continues to see positive customer demand,’ and that while it remains ‘vigilant of the potential for broader macro-economic volatility...the business plan, adaptability and high levels of customer service leave the Group well positioned for continued outperformance.’
Luceco (LON: LUCE)
Luceco shares are down a whopping 75% year-to-date to just 85p. The manufacturer and supplier of lighting products, wiring accessories, and portable power solutions, for both domestic and commercial customers, is also being hit by expectations of a wider economic slump.
But in H1 results, it saw revenue rise by 29% to £106.4 million and adjusted operating profit increase by 60% to £11.5 million, when compared to 2019 levels. While there has been some slowdown compared to its ‘record 2021 results,’ the company attributed this to a ‘slowdown in DIY demand post-lockdown.’
CEO John Hornby argues that ‘our results remain significantly ahead of pre-pandemic levels, underlining the strategic progress we have made over recent years... I am encouraged by the progress and potential of our recently acquired businesses, particularly the access they have given us to the growing EV charging market.’
Frenkel Topping (LON: FEN)
Frenkel Topping shares have slumped by 23% year-to-date to 59p. The specialist financial services company operates in the clinical negligence and personal injury space, and boasts an exceptional 99% client retention rate, a record it has held for the past 13 years.
In H1 results, revenue rose to £11.1 million from £8.5 million in the same half last year. Meanwhile, EBITDA rose from £2.4 million to £2.7 million.
CEO Richard Fraser notes that its performance is ‘in no small part supported by the recent acquisition strategy which has diversified our income streams and strengthened our position in the market.’
Shoe Zone (LON: SHOE)
Shoe Zone shares are up a whopping 173% over the past year to 180p. The budget-friendly penny share saw significant growth by dint of its value offering during the pandemic. To date, it’s sold nearly 17 million pairs of shoes at an average of just £12 per pair.
In its most recent available results, Shoe Zone saw revenue rise by 73% year-over-year to £69.9 million. Meanwhile, profit before tax increased to £3.1 million, up from a £2.6 million loss in H1 2021.
Further, digital revenues of £11.8 million represented an increase of 114.5% on a two-year basis, and further growth could be reported soon.
Blue Star Capital (LON: BLU)
Blue Star Capital shares became a star of the pandemic, rising to 0.51p by the beginning of 2022. However, they have since collapsed to just 0.15p, representing a potential buying opportunity for investors with a reasonable risk appetite. Many of its investments are in high-risk early growth stage companies, with the investment company dedicated to e-sports and new technologies, including blockchain and NFTs.
Of course, the shine has come off the crypto sector. Blue Star has seen the value of its make-to-market portfolio decrease by circa £900,000 over the past year to £11.7 million.
However, with £113,000 in net cash, the board ‘believes that the Company's portfolio has continued to achieve significant operational and financial milestones’ and is ‘confident that it is both well-funded and well-positioned to perform strongly in the second half of 2022 and beyond.’
Premier African Minerals (LON: PREM)
Premier African Minerals shares are up 89% year-to-date to 0.36p. PREM owns shares of multiple projects, including the RHA Tungsten mine, the Otjozondu Manganese Mining Project in Namibia, and the Danakil Potash Project in Ethiopia.
However, its crown jewel is the Zimbabwe-based Zulu lithium claims that could represent the largest undeveloped lithium mine in Zimbabwe. Moroever, with the lithium spot price at a near-record high, long-term demand for the silvery metal is likely to remain elevated as the EV revolution accelerates.
CEO George Roach has enthused over recent assay results, and expects its pilot plant in the Zulu claims to ‘remain on target for hot commissioning in Q1 of 2023.’
Totally (LON: TPY)
Totally shares have dropped by 12% year-to-date to 30p. The company partners with healthcare commissioners and hospitals across the UK and Ireland to help manage demand and reduce waiting lists, and delivered services to 2.5 million patients in fiscal 2022.
Meanwhile, Totally’s corporate partners help to reduce reliance on healthcare by promoting healthy lifestyles. In March, the company acquired Pioneer Health Care, an independent provider of insourcing and outsourcing services to the NHS. CEO Wendy Lawrence thinks the tie-up has ‘undeniable potential’ due to the complementary factors between the two businesses.
Totally appears to have a strong long-term investment case, despite the recent poor performance.
Botswana Diamonds (LON: BOD)
Botswana Diamonds shares have dropped by 28% over the past year to 0.90p. The diamond exploration and project development company holds exploration licences across Botswana and South Africa.
Hailing Botswana as the ‘best diamond address in the world and home to some of the world’s greatest diamond mines,’ the company also owns a 51.7% stake in Siseko Minerals.
The company has been on somewhat of an acquisition spree, most recently acquiring the Thorny River Project in South Africa. Chairman John Teeling advises ‘this will allow the company to expedite the mine permitting of Thorny River, with the initial applications having already taken place.’
Of course, exploratory mining comes with high risk as standard.
How to trade or invest in penny stocks
With us, you can get exposure to penny stocks via trading or investing. See the differences below, and find out how to get started,
|Trading penny stocks||Investing in penny stocks|
|Speculate on the price of penny stocks rising or falling||Buy and sell underlying penny stocks|
|Leverage your exposure – you’ll only pay a 20-25% deposit to get exposure to the full position size2||Pay the full value of the shares you buy upfront|
|Leverage means both profit and loss will still be magnified to value of the full trade – so you could gain or lose money faster than you’d expect||You may get back less than you put in because the value of shares can rise or fall|
|Trade tax-free with spread bets and offset losses with CFDs3||Invest tax-free with a stocks and shares ISA3|
|Take shorter-term positions||Focus on longer-term growth|
|You can look to hedge your portfolio when trading||Build a diversified portfolio|
|Trade without owning the underlying asset||Take ownership of the underlying asset|
|No shareholder privileges||Gain voting rights and dividends (if paid)|
|Trade via both a spread betting account and CFD account||Invest via a share dealing account|
Note that leverage will amplify both your profits and your losses, and you could lose more than your deposit. Manage your risk carefully.
Risks and rewards of penny stocks
- The share prices of penny stocks can be volatile, either as a result of lower liquidity or because they are sensitive to news and market developments
- Penny stocks can turn into a huge success or an utter failure overnight: winning or losing one contract or the level of success of a new product, for example, can decide their future
- Many penny stocks have no track record and it is not uncommon for them to have no assets, operations or revenue
- Products and service offerings are often still in development and yet to be tested in the actual market
- News coverage and analysis of penny stocks is harder to come by compared to gaining insight into larger, more popular stocks
- Penny stock companies are more likely to raise equity from investors on an ongoing basis, as it gives the business a way of securing vital funds for growth if traditional lenders refuse to provide it
- When trading on penny stocks with us using spread bets or CFDs (but not with share dealing), you’ll do so using leverage. Leveraged trading comes with a high risk, as both profits and losses will be amplified. Always take steps to mitigate your trading risk.
1 As at 5 October 2022
2 Trade in your share dealing account three or more times in the previous month to qualify for our best commission rates. Please note published rates are valid up to £25,000 notional value. See our full list of share dealing charges and fees.
3 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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