Recent stock market sell-offs leave plenty of quality UK shares looking undervalued to me right now. Here are four top penny stocks I think provide excellent value for money following recent weakness. Each trades below £1 per share.
Pick a card
The Card Factory share price is up 36% from this time last October. But fears over rapidly-rising inflation and supply chain problems have dragged the greetings card retailer 20% lower on a one-month basis.
I think this provides a terrific dip-buying opportunity. Okay, Card Factory faces the possibility of stock shortages and rising costs. But I think the current economic climate, with GDP growth cooling and consumer inflation rising, could help supercharge demand for its cut-price products. Value retail is already one of the hottest games in town. I expect growth here to benefit over the medium term from fading customer confidence.
Toasting a fallen titan
Pub operator Marston’s has also fallen 11% over the past month. This has trimmed gains on a 12-month basis to a still-impressive 75%. Investor appetite for this penny stock has faded amid rising inflationary pressures. Predictions of a Covid-19 surge over the winter in some quarters have also dented sentiment for some leisure stocks like this.
I still think that Marston’s is an attractive penny stock to buy, though. It trades on a forward P/E ratio of 7 times, a reading I think reflects the above risks. From a long-term perspective I think the company looks good as Britons spend greater proportions of their income on drinking and eating out. City analysts think the business will bounce back into profit this year.
Another Topp penny stock
I’d also use the 10% slump in Topps Tiles shares since early September as an excuse to go bargain hunting. The building materials retailer has risen 33% over the past year and I think it could start rising again.
The housebuilding market continues to go from strength, and construction rates are tipped to grow further in the next few years as homebuyer demand soars. Meanwhile the home renovations market also remains strong in the wake of Covid-19 lockdowns. I think Topps Tiles is a great cyclical stock to buy despite the threat posed by rising inflation and signs that the UK economic recovery is running out of steam.
I’d also capitalise on the 8% decline in the Residential Secure Income share price over the past month. The UK suffers from a shocking shortage of affordable housing and this penny stock works with local authorities and housing associations to provide it. I like the extra-defensive industry in which it works. And I like the company’s ultra-low share price (it trades on a forward PEG multiple of 0.5).
Residential Secure Income’s share price has risen 10% over the past 12 months to current levels just below the penny stock limit of £1. I’d buy it despite the ever-present danger it may fail to locate or complete on acquisitions. This could naturally have a significant impact on profits growth.
The Bank Of England has acknowledged that inflation is likely to peak above 4%, and stay there until the second quarter of 2022.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory and Marstons. 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.