Key Points
- Investing in UK shares like penny stocks could be a good idea as inflation surges
- Gold stocks could thrive in an uncertain environment
- I like property stocks too, but would avoid retail property
Inflation continues to rise at an alarming pace. The Bank of England has just predicted it could top 7% in the spring as energy costs surge. This presents risk for many UK shares as it threatens to weigh on economic growth and push costs higher. But this doesn’t mean I’d rather park my cash somewhere else like in a savings account, even as interest rates rise.
I’m with Hargreaves Lansdown’s senior personal finance analyst Sarah Coles on what we can expect. On the one hand she says that “there’s always the hope that now profit margins have been increased, further rate rises could persuade banks to boost rates more.” But she goes on to add that “with so much cheap money sloshing around at these institutions, there’s not a vast amount of pressure for this just yet.”
2 penny stocks I’d buy as inflation booms
I won’t settle for low interest rates on savings accounts, especially when there are many UK shares that could actually thrive as global inflation heads higher.
Here are two penny stocks I’m thinking of buying right now. I think their profits could soar as inflationary pressures increase.
Getting in on gold
Grabbing a gold-producing stock seems like a particularly good idea today. This is because this classic safe-haven asset tends to rise in price when inflation rockets and the value of paper currencies comes under intense scrutiny. There are other factors that could push precious metals prices higher in the near term too, like the worsening Ukraine crisis and fears over China’s rapidly-slowing economy.
I’d buy Serabi Gold to make the most of a long-term gold rush. Today the penny stock trades on a forward P/E ratio of just 5 times. I think it’s a top buy despite the ever-present threat of mining difficulties that could hit profits.
A property powerhouse
Buying into property is another sound strategy as rental growth tends to move roughly in line with inflation. Selecting a stock like shopping centre operator Land Securities could be dangerous, however, as consumer spending stands to suffer badly in times of rampant price rises. In other words the number of its tenants going to the wall (or seeking rent reductions) could potentially surge. I’d be happier to invest in Civitas Social Housing instead.
Residential landlords like this can expect profits to remain strong even as household budgets come under pressure. We all need somewhere to live, right? I’d buy this penny stock even though earnings could suffer if it fails to identify decent acquisition targets. Indeed, I think Civitas Social Housing could be a brilliant long-term investment too as Britain’s shortage of affordable housing rolls on, giving a sustained boost to rent levels.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.
