I’m searching for the best dirt-cheap UK shares to make big money in 2022 and beyond. Here are three penny stocks on my research list. Should I buy them?
Dirt-cheap penny stocks
Vertu Motors (LSE: VTU) is a share I sold out of towards the end of last year after a strong share price run. The shares though are still cheap, trading on a P/E of 13.
Continuing shortages of chips leading to fewer new cars and higher second-hand car prices have been very positive for Vertu’s shareholders in recent times. That fortuitous set of circumstances won’t last forever though. But if the new car market remains constrained for much of this year, the company could do well.
What’s not clear right now is how much of the share price gains will fall away as and when market conditions normalise. That’s the biggest risk I see when it comes to investing in Vertu – or indeed any – of the car dealers right now.
I think Vertu is a very good penny stock and is potentially a bargain, but I won’t be re-adding it to my portfolio, simply because of the market uncertainty.
South African miner Sylvania Platinum (LSE: SLP) is a share I hold. It’s also cheap. The shares trade on a P/E of only three. That’s staggeringly low, even compared to many other miners.
That’s a reflection of 2021 being a tough year for the company. Prices of the metals it processes – particularly rhodium – fell substantially in the second half of the year. At the same time costs rose. That’s a double whammy that really hit the shares. As I’ve cautioned before, mining is an inherently difficult and cyclical business. And operating in South Africa, which has seen civil unrest, won’t have helped the share price either.
Overall though, the shares are dirt-cheap and I’ll be keeping them in my portfolio for the foreseeable future. If the price of rhodium, in particular, rises this year the shares could recover strongly.
Building back better
Another cheap penny stock I’ve come across is Speedy Hire (LSE: SDY). Its price-to-book ratio is 1.47, which is incredibly low. As an aside, it was a key metric for Warren Buffett’s mentor, Benjamin Graham, and is important for many value investors.
The tools and equipment rental specialist recorded a 29.9% year-on-year improvement in EBITDA for the six months ended 30 September, to £49.1m, while its adjusted operating profit was £9.9m higher at £16.2m.
The company said artificial intelligence has meant it’s been better able to utilise its assets, which in an asset-heavy business is important. The more it rents out, the better it’s going to do financially and in turn for shareholders.
The concern with such a business is the need for continuous investment in equipment. Many investors prefer asset-light businesses that can scale more easily. Speedy Hire is also very exposed to the construction market. Any slowdown in building in the UK, in particular, would hurt the company and the share price. I’ll keep an eye on Speedy Hire but have no plans to add the penny stock as a new investment.
Vertu Motors, Sylvania Platinum and Speedy Hire all look cheap on slightly different metrics. The standout one that appears very undervalued to me though is Sylvania Platinum. That’s why I hold the shares and will likely add more.
